Treasury Secretary Yellen warns Congress of looming crypto dangers like stablecoin runs, platform vulnerabilities, and price volatility, urging collaborative efforts with Congress to establish robust regulations for consumer protection, financial stability, and responsible innovation in the crypto space.
Out of Compliance with Applicable Laws
U.S. Treasury Secretary Janet Yellen sounded the alarm on the potential threats posed by cryptocurrencies to the financial system during her address to the House Financial Services Committee on Tuesday. Excerpts of her prepared testimony released beforehand reveal specific concerns regarding stablecoins, crypto platform vulnerabilities, and inherent price volatility.
“The council is focused on digital assets and related risks such as from runs on crypto-asset platforms and stablecoins, potential vulnerabilities from crypto-asset price volatility, and the proliferation of platforms acting outside of or out of compliance with applicable laws and regulations,” she said in the testimony prepared for delivery, which was posted on the committee’s website.
Areas of Concern
Yellen identifies stablecoins, assets pegged to traditional currencies like the dollar, as potential triggers for bank run-like situations if investor trust falters. Additionally, she raises concerns about the vulnerability of crypto platforms to runs, similar to those experienced in traditional banking, which could destabilize the entire system. Finally, the inherent volatility of cryptocurrency values exposes investors to significant risks and carries the potential to disrupt broader financial markets.
These concerns highlight the Financial Stability Oversight Council’s (FSOC) recent focus on crypto-related risks. Led by Yellen, the FSOC identifies such risks as major threats to financial stability. In her prepared remarks, Yellen emphasizes the council’s specific areas of concern: “runs on crypto-asset platforms and stablecoins, potential vulnerabilities from crypto-asset price volatility, and the proliferation of platforms acting outside of or out of compliance with applicable laws and regulations.”
Need for A Robust Regulation
While acknowledging the potential benefits of blockchain technology, Yellen reiterates the crucial need for robust regulations to mitigate these risks. She remains committed to collaborating with Congress to develop a comprehensive framework that protects consumers, safeguards financial stability, and fosters responsible innovation within the crypto space.
This testimony signifies a continued push for regulatory clarity surrounding cryptocurrencies, with a specific focus on addressing potential dangers and ensuring market stability in the financial system.