In an interview with Reuters, U.S. Treasury Secretary Janet Yellen spoke about her views on cryptocurrencies, stating that she did not believe that they posed a systemic risk to the financial system.
She went on to say that she believed that there was a need for a regulatory framework to protect consumers and prevent money laundering.
Yellen said that she was concerned about the use of cryptocurrencies in illicit activities and the lack of transparency in some blockchain transactions.
Setting the record straight on crypto
Yellen’s views on cryptocurrencies are clear: there is a need for a regulatory framework, but outright banning of blockchain activities is not necessary. Instead, the focus should be on protecting consumers and preventing money laundering.
The economist recognizes that the use of cryptocurrencies in illicit activities is a concern, and transparency in distributed ledger transactions is needed.
In a recent meeting of the Group of 20 (G20) nations, the topic of cryptocurrencies was brought to the forefront of the discussions.
The Indian presidency of the G20 comes as its neighboring countries are seeking urgent IMF funds due to the economic downturn brought about by the COVID-19 pandemic and the Russia-Ukraine war.
The world’s largest bilateral creditor, China, has called for a fair and objective analysis of the causes of global debt issues, as lenders are being pressured to take a large haircut on loans.
The IMF has created a global sovereign debt roundtable to address this issue, and the G20 members have agreed to bridge their differences for the benefit of countries.
One priority area for India is regulating cryptocurrencies, and the IMF agrees. However, there is a need to differentiate between central bank digital currencies, stablecoins, and privately issued assets.
IMF Managing Director Kristalina Georgieva said that there must be a strong push for regulation, and if it fails, then banning these assets should not be taken off the table, as they could pose a risk to financial stability.
Janet Yellen also emphasized the need for a strong regulatory framework for digital assets, but she did not suggest the outright banning of crypto.
Joint statement from U.S. federal agencies
In a joint statement released by three United States federal agencies, the banking sector was advised against creating new risk management principles to counter liquidity risks resulting from crypto-asset market vulnerabilities.
The Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) reminded banks to apply existing risk management principles when addressing crypto-related liquidity risks.
The statement emphasized the key liquidity risks associated with digital assets and related participants for banking organizations.
The risks highlighted concern the unpredictable scale and timing of deposit inflows and outflows, which could potentially incur losses for investors.
The joint statement from the three United States federal agencies advising banks against creating new risk management principles is a positive step in the right direction for regulating virtual currencies.