Stability and Regulation: Yellen’s Call to Action

In a recent Senate Banking Committee hearing, U.S. Treasury Secretary Janet Yellen made it clear that the time has come for lawmakers to formulate a “consistent federal framework” on stablecoins. With the cryptocurrency market experiencing a rocky ride, especially with the recent plummet of TerraUSD (UST) to $0.67, Yellen highlights the importance of a regulatory structure that can address potential risks to financial stability.

What’s Up with TerraUSD?

During Yellen’s testimony, she pointed to the troubling case of TerraUSD, which is an algorithmic stablecoin not backed by traditional cash or securities. Senator Pat Toomey, representing Pennsylvania, raised concerns about UST’s stability, prompting Yellen to emphasize that the incident underscores the necessity for regulations tailored to the rapidly evolving digital asset landscape.

• Why stablecoins matter: Stablecoins like UST are designed to maintain a stable value, making them appealing for transactions. However, without proper backing or regulatory oversight, their value can waver significantly.

A Bipartisan Approach to Regulation

Yellen expressed optimism about the prospects of bipartisan cooperation among Congress members to push for legislative solutions by the end of 2022. She believes that a united front is crucial for developing a robust regulatory framework before the market expands further.

Guided by Biden’s Executive Order

In compliance with President Biden’s executive order on digital assets, the Financial Stability Oversight Council is actively working on a report that outlines risks and regulatory gaps, as discussed by Yellen. This collaborative effort aims to harmonize policies across various government agencies, directly addressing the pressing need for a national framework on cryptocurrency.

Yellen’s Ongoing Concerns

Throughout her tenure in the Biden administration, Yellen has consistently emphasized that cryptocurrencies pose particular challenges for the Treasury, primarily due to their association with illicit financing and money laundering activities. Her latest statements reiterate the pressing need to scrutinize stablecoins, pointing out that while they can offer benefits, unchecked growth can lead to financial instability.