Treasury Secretary Janet Yellen Calls for Cryptocurrency Regulation
Treasury Secretary Janet Yellen has urged U.S. lawmakers to pass legislation regulating cryptocurrencies and stablecoins, citing the increasing risks they pose to financial stability. During her appearance before the Senate Banking Housing and Urban Affairs Committee, Yellen emphasized the need for regulation in order to address potential vulnerabilities, such as runs on crypto asset platforms and stablecoins, price volatility, and non-compliance with laws and regulations. She specifically called for the regulation of stablecoins and the spot market for non-securities crypto assets.
Concerns over Stablecoins
Yellen highlighted the risks associated with stablecoins, noting that their secrecy around reserve assets and other factors make them susceptible to destabilizing runs. These digital assets are designed to maintain a steady value, typically pegged to $1 per coin.
Addressing Cryptocurrency’s Role in Financing Terrorism
The committee also discussed the role of cryptocurrency in financing terrorism, with Senator Elizabeth Warren expressing concerns. Yellen acknowledged that terrorist groups like Hamas, al Qaeda, and Hezbollah have used digital assets to raise and transfer funds. She emphasized the importance of updating counterterrorism tools to respond to the risks posed by digital assets and suggested strengthening Treasury’s authorities.
Regulating AI in Financial Markets
Senator Mark Warner raised concerns about the rapid adoption of artificial intelligence (AI) in finance. Yellen acknowledged that AI could create systemic risk and stated that efforts are underway to deepen understanding of emerging hazards. She encouraged financial institutions, regulators, and market participants to enhance their expertise and monitoring capacity in this area. Warner emphasized the need for coordinated action to address threats like AI-enabled market manipulation.
Climate Change and China
Senator Jack Reed inquired about the impact of climate change on property insurance coverage. Yellen expressed concern over the absence or unaffordability of insurance due to intensified climate risks, highlighting the harm to households and financial stability. Senator Chris Van Hollen questioned Yellen about U.S. investor funds supporting Chinese military technology development. Yellen acknowledged the need to prevent outbound investments from aiding China’s military or other countries of concern.
Hot Take: Treasury Secretary Calls for Crypto Regulation to Address Financial Risks
Treasury Secretary Janet Yellen has emphasized the need for legislation to regulate cryptocurrencies and stablecoins, citing their increasing risks to financial stability. Yellen specifically called for the regulation of stablecoins and non-securities crypto assets’ spot market. She highlighted the vulnerabilities associated with stablecoins, such as destabilizing runs due to secrecy around reserve assets. Additionally, Yellen addressed concerns about cryptocurrency’s role in financing terrorism and stressed the importance of updating counterterrorism tools. The discussion also touched on regulating AI in financial markets and addressing climate change-related risks and investments supporting China’s military technology development.
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