Janet Yellen, US Treasury Secretary, answered questions about the future of stablecoin regulation in the country. Her speeches took place this Thursday morning (12), two days after presenting the TerraUSD (UST) situation to US congressmen.
While the risks of financial instability in the US were the main topic of the meeting, curiosity about stablecoins quickly arose and became the most discussed agenda of the session.
Additionally, Yellen also talked about the US CBDC, the digital dollar. From the tone of his speech, it is difficult for the government to launch such a product, after all, it is still concerned about the risks associated with it.
Stablecoins are threats to America’s financial stability
When asked about the government’s stance on ensuring that stablecoins are not a threat to the US economy, Janet Yellen said that they are working hard on this and that a dedicated group is preparing recommendations for Congress.
“There are potentially useful innovations that can make payment systems faster and more efficient, but we really need a regulatory framework.”
Yellen then again cited the TerraUSD (UST) case as a “demonstration of the risks of stablecoins”. Going further, he also showed knowledge about these assets, classifying UST as an algorithmic stablecoin. The Treasury Secretary then also noted that even Tether (USDT) even lost parity with the dollar this morning.
“Yesterday and this morning, the largest stablecoin Tether also ‘broke the book’ for a while”.
Regulation similar to banks
The focus of the matter then shifts to how these regulations will be addressed. For Yellen, it is important that these new laws protect users of these technologies, without preventing the industry from continuing to grow.
“I think creating a regulatory framework that is appropriate to the risks that stablecoins pose really provides what stablecoin issuers need to thrive and innovate.”
Interrupting Yellen, Congressman Patrick McHenry points out that a stablecoin backed by liquid assets would not face a bank run, an event in which many people dump their coins at the same time, causing their prices to drop. as TerraUSD (UST). Therefore, there seems to be a strong interest in allowing these coins to exist if they minimize the risks.
“But backed 1:1, as the group says, with high liquidity and quality assets, you don’t have a run if you’re backed 1:1 in cash or cash equivalents.”
Continuing, we come to the most interesting point of the conversation: how the US thinks about the regulation of stablecoins. According to Yellen, the government is working on a framework similar to those covering the banking sector today.
“The group working on this considered different alternatives and unanimously recommended establishing regulatory frameworks for banks to regulate stablecoins. It is a flexible structure and implies adequate capital and liquidity requirements.”
The digital dollar is also a danger
Another point discussed was the creation of the digital dollar, the digital currency of the US central bank (CBDC). In addition to noting that stablecoins do not yet pose much of a risk, given their small size and adoption, Yellen points out that the digital dollar itself may be a threat.
“I wouldn’t rate them, on that scale, as a real threat to financial stability, but they are growing very rapidly and present the same type of risk that we have known about for centuries in bank runs.
There is a reason to want to have a CBDC, but there is also a concern that depending on how it is done, it could have significant impacts on financial intermediation.”
Finally, it is difficult to know what impacts such a regulatory framework will have on stablecoins in the cryptocurrency market, after all, it is unprecedented. Therefore, the matter deserves the attention of the market. As for the digital dollar, it is difficult for the US to deliver this product in the short term, after all, it is more concerned about its risks than focused on its benefits.