Digital assets policy by the federal government should ensure responsible innovation of the financial vehicles that works for all Americans, protects national security and the planet, and contributes to economic competitiveness and growth, the Treasury secretary said Thursday.
In a speech delivered at the American University’s Kogod School of Business Center for Innovation in Washington, D.C., Treasury Secretary Janet L. Yellen said responsible innovation of digital assets should reflect “thoughtful public-private dialogue” and take account of the many lessons learned throughout the nation’s financial history.
“This sort of pragmatism has served us well in the past and I believe it is the right approach today,” she said.
Yellen shared several lessons that she said applied to the consideration of regulatory policy regarding digital assets. Among them: the nature of responsible innovation, the structure of appropriate guardrails, the fundamentals of the financial system, our role in the global economy, and the value of collaboration.
She told the group that the financial system benefits from responsible innovation. “New technologies build on older ones and a chain of innovation has transformed financial services over time,” she said. However, she added, many transactions – even with the development of new technologies – take too long today to settle. “Proponents of digital assets envision a more efficient payment system with instantaneous transactions and lower costs no matter where you live,” she said – but she quickly added it is too early to tell if digital assets technology will live up the promise.
Regarding a central bank digital currency (CBDC), advocated by some (and being explored by the Federal Reserve), Yellen said that as a liability of the central bank, a CBDC could become a form of trusted money comparable to physical cash – but potentially offering some of the projected benefits of digital assets.
However, she also noted that when regulation lags innovation, vulnerable people may suffer the greatest harm. She pointed to stablecoins – which suffered a run in June, 2021, after a sharp drop in the price of the assets used to back a stablecoin set off a negative feedback loop of stablecoin redemptions and further price declines – as an example. “We are now working with Congress to advance legislation to help ensure stablecoins are resilient to risks that could endanger consumers or the broader financial system,” she said. “We are also working closely with our international partners to promote consistent regulation and supervision across jurisdictions.”
Yellen asserted that any regulation should be based on risks and activities, not specific technologies, and thus be ‘tech neutral.”
“For example, consumers, investors, and businesses should be protected from fraud and misleading statements regardless of whether assets are stored on a balance sheet or distributed ledger,” she said. “Similarly, firms that hold customer assets should be required to ensure those assets are not lost, stolen, or used without the customer’s permission. And, taxpayers should receive the same type of tax reporting on digital asset transactions that they receive for transactions in stocks and bonds, so that they have the information they need to report their income to the IRS.”
The Treasury secretary made it clear that the U.S. dollar must remain central in the world’s financial system. “Sovereign money is the core of a well-functioning financial system and the U.S. benefits from the central role the dollar and U.S. financial institutions play in global finance,” she said. She added that the U.S. has a strong interest in ensuring that innovation does not lead to a “fragmentation in international payment architectures and that the development of digital asset technologies is consistent with our values and laws.”
Finally, she urged teamwork in ensuring responsible innovation. “Many of the most groundbreaking innovations in our history have involved all of us: policymakers and businesspeople, advocates, scholars, inventors, and citizens,” she said. “Think of the development of the national highway system, the space race, the creation of the internet, or the ongoing revolution in biotechnology. All of these innovations have transformed the way we live our lives.”