"Transformative Technologies Will Benefit Society," U.S. Treasury Secretary Yellen's First Public Talk on Digital Assets

U.S. Treasury Secretary Janet Yellen said in her first speech on digital assets Thursday that the digital dollar could become a "credible currency comparable to physical cash.

Addressing attendees at an event at American University, Yellen highlighted the extreme divide in views on cryptocurrencies, saying it is often the case with "transformative" technologies. Some proponents speak as if the technology is such a radical and beneficial change that the government should step back entirely and let the innovation take its course," she said. Skeptics, on the other hand, see limited value in the technology and related products, and advocate for tougher government regulation."

Speaking at an event at American University, Yellen highlighted the extreme divide in the market over cryptocurrencies, saying it is often the impact of "transformative" technologies. Some proponents speak as if the technology is so radical and beneficially transformative that governments should step back entirely and let the innovation run its course," she said. Skeptics, on the other hand, see limited, if any, value in the technology and related products, and advocate a more rigorous government approach. "
In her speech, she focused on central bank digital currencies (CBDC), an important area of interest for U.S. policymakers over the past few years.

Yellen also said, "The development of our currency to its current form has been a dynamic process that has evolved through centuries of change. Today, monetary sovereignty and a unified currency have brought clear benefits to economic growth and stability. Our approach to digital assets must be guided primarily by a focus on these benefits, and some have suggested that CBDC may be the next evolutionary model for our currency."

"Any potential CBDC design must address its potential negative impact on the financial system, privacy, the ability to address financial crime and national security, the ability to regulate macro policy, and how it interacts with existing fiat currencies, stablecoins or other CBDCs."

Commenting on President Biden's executive order on digital assets, Yellen said that any form of CBDC must support the role of the U.S. dollar in international markets.
"I don't yet know what conclusions we will reach, but we must be clear that issuing a CBDC could present significant design and engineering challenges, and that this entire process will take years of development, not months. Therefore, I share the President's eagerness to move forward with research to understand the challenges and opportunities that CBDC may present to U.S. interests."

In her speech, Yellen highlighted five lessons she learned.

• The financial system can "benefit from responsible innovation".
• Potential harm to vulnerable individuals if regulation does not keep pace with innovation.
• Rules should focus on the activity and its risks, rather than on specific technologies.
• The United States benefits from the current role of the dollar.
• Regulators should work with industry to support responsible innovation

Yellen pointed out specific concerns surrounding the existing cryptocurrency market, such as the operation of stablecoins. She mentioned the Iron Finance crash last year, when the price of its TITAN token fell when it eventually led to the decoupling of its IRON stablecoin from the U.S. dollar.
Yellen emphasized that "this is not hypothetical. there was a stablecoin crash (algorithmic stablecoin) in June 2021, when the price of the assets used to back the stablecoin fell sharply, triggering a negative feedback loop of stablecoin redemptions and further price declines. "