U.S. Treasury Secretary Yellen: No one can ensure that "stablecoins can be redeemed"

Source/Decrypt

Compiled by Nick

U.S. Treasury Secretary Janet Yellen has softened her stance on cryptocurrencies, but she remained cautiously skeptical of them during a recent speech on digital assets at an American university.

Yellen outlined federal regulators’ plans for potentially reducing reliance on centralized intermediaries like banks and credit card companies. She also reiterated her concerns about stablecoins.

“Most issuers say they back their coins with safe and liquid traditional assets. That way, any time you want to exchange your stablecoins back into dollars, the company has the funds to make the conversion,” she said. “Now, no one can guarantee you that this will happen.”

Her stance on stablecoins has already been documented.

Last summer, she urged lawmakers to “act quickly to ensure there is an appropriate U.S. regulatory framework” for stablecoins. Then in October, the Treasury Department said it would allow the SEC to take the lead in regulating stablecoins such as Tether (UST) and USDC.

In January, the Federal Reserve published a report saying it was still studying the possibility of issuing a central bank digital currency (CBDC).

A CBDC is a digitized version of a country’s fiat currency that can be used as legal tender, such as China’s digital yuan (e-CNY), the Bahamian Sand Dollar (B$), and Nigeria’s eNaira. Unlike decentralized cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH), CBDCs are directly backed by a country’s central bank.

Yellen said U.S. regulators are still considering the advantages of CBDCs, adding that the Treasury Department will work with the White House and other agencies to release a report on cryptocurrencies within the next six months.

There has already been some opposition from lawmakers who argue that CBDCs would pose significant privacy risks.

Rep. Tom Emmer (R-MN), who in January tried to ban the U.S. from issuing its own CBDC, argued that if users had to have an account at the Fed to use the currency, it would “put the Fed on a path akin to digital authoritarianism.”

And last month, Sen. Ted Cruz (R-TX) echoed Emmer’s concerns in his own legislation that would prohibit the Federal Reserve from issuing CBDCs directly to individuals.

"Not only would this CBDC model centralize Americans' financial information, making it vulnerable to attack," he wrote in a press release on his website, "it could be used as a tool to directly monitor Americans' private transactions."

The administration’s plans also include advancing FedNow, an instant payments system that the Federal Reserve has been studying since 2019.

Much of her speech echoed an executive order signed by President Biden a month ago, saying the Treasury Department seeks to protect consumers, promote stability, reduce risk and facilitate equitable access to financial services. But Yellen did say she remains unsure whether digital payments will create a more efficient payment system that reduces costs for all participants.

"Personally, I think it's too early to tell," she said. "Issues such as cost and technical hurdles will need to be overcome."

She also said that price volatility in Bitcoin and other cryptocurrencies has inhibited their widespread use for everyday purchases such as buying a gallon of milk. Even so, Yellen did spend considerable time describing the problems with the current financial system.

"For most Americans, many transactions take too long to settle," she said. "Technical factors and business motivations combine to create a common, frustrating experience faced by tens of millions of Americans."

The government has been under pressure for years to issue regulatory guidance on cryptocurrencies and blockchain technology. Yellen acknowledged the dangers of continuing to delay regulation, recalling the events leading up to the 2008 Great Recession.

"When regulation fails to keep pace with innovation, vulnerable groups suffer the most," she said. "This is a painful lesson we learned during the global financial crisis."