Listening to Treasury Secretary Janet Yellen’s whole speech on cryptocurrency at American University on Thursday morning (April 7), the most striking aspect was the dichotomy between her perspective on the industry’s potential and the way the government should respond to it.
A long-time crypto skeptic who has taken a more neutral and even interested perspective on digital assets in her time at the top of America’s financial system, Yellen’s basic message was that regulation must keep up with innovation rather than pull it back or be dragged along.
While digital assets such as cryptocurrencies, stablecoins and central bank digital currencies like a digital dollar could be as “radically and beneficially transformative” as the space race, the internet and the current biotech revolution, she emphasized that the need for caution should be regulators’ paramount concern.
See also: Yellen Speech on Crypto Calls for New, Faster Payments System
If you had to pick out one key comment in the 30-minute speech that marked her first formal discussion of her views on crypto’s place in the U.S. financial system, it would be:
“The government’s role should be to ensure responsible innovation — innovation that works for all Americans, protects our national security interests and our planet, and contributes to our economic competitiveness and growth. Such responsible innovation should reflect thoughtful public-private dialogue and take account of the many lessons we’ve learned throughout our financial history.”
Read more: Biden’s Executive Order Set to Fast-Track Crypto Policy
Its role, she suggested, is to plot a neutral course between proponents who believe “the government should step back completely and let innovation take its course” and skeptics who see little if any value in crypto and “advocate that the government take a much more restrictive approach,” she said.
“That type of “pragmatism has served us well in the past and I believe it is the right approach today.”
Angrily Agreeing
That’s easy enough to say, but quite hard to do in practice.
The need to support innovation has become a divisive issue in Congress, with Republican senators and congress members calling for regulations and a laissez-faire policy that encourages more experimentation both private companies and state-level regulators, while many Democrats have focused on the dangers cryptocurrencies pose.
See also: Sen Warren Calls DeFi the ‘Most Dangerous’ Part of Crypto at Senate Hearing
And yet in the end, lawmakers on both sides of the aisle tend to come down roughly in the same place as Yellen.
“Rather than trying to ignore or suppress cryptocurrency and related technologies, regulators and legislators alike need to recognize that open, public networks are here to stay. Our laws and regulations must adapt to these developments,” Sen. Pat Toomey (R-Pa.) said in February.
Saying they have the power to build wealth and free individuals from costly middlemen, he added, “it’s important Congress gets this right and ensures the United States remains at the forefront of cryptocurrency and fintech innovation.”
Still, where he ended was, “it’s important Congress gets this right and ensures the United States remains at the forefront of cryptocurrency and fintech innovation. I am hopeful the broad array of legislative proposals I receive will help in crafting thoughtful legislation.”
About Time
The crypto industry has been practically begging for a clear regulatory framework of the kind Yellen discussed on Thursday for years.
Read also: Six Crypto Execs Warn Congress Not to Overregulate Crypto
Jeremy Allaire, CEO of USD Coin stablecoin-issuer Circle was thrilled with the executive order President Biden issued on March 10 calling for the creation of that regulatory framework in six months — which was the catalyst for Yellen’s speech today.
“For those of us in the crypto community,” the executive order “should be viewed as the single biggest opportunity to engage with policy makers on the issues that matters,” he said.
Need for Caution
That said, Yellen pointed to a few areas of concern, citing recent history as precedent. While crypto isn’t new, the issues it presents by and large aren’t.
In 2008, the combination of shadow banks and “an explosion of new financial products allowed dangerous levels of risks to accumulate,” culminating in the subprime mortgage implosion that slashed the S&P 500 in half and cost millions of Americans their jobs, savings and homes,” she said.
“We have enjoyed the benefits of innovation in the past,” she said, “and we have also confronted some of the unintended consequences.”
While agreeing that regulations will need to be adjusted and expanded to fit its particulars, Yellen said that “regulation should be tech-neutral” wherever possible. That means protecting consumers, investors, and businesses “from fraud and misleading statements regardless of whether assets are stored on a balance sheet or distributed ledger.”
But it also means that taxpayers should not be treated differently whether they are investing in digital assets or stocks and bonds.
“This sort of pragmatism has served us well in the past,” Yellen said in concluding the speech. “I believe it is the right approach today.”
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