Design and engineering challenges inherent in developing a U.S. central bank digital currency (CBDC) will take years, not months, says Treasury Secretary Janet Yellen said Thursday at the American University of Washington.
The event marked the first time Yellen publicly aired his views on digital assets since President Joe Biden issued an executive order last month outlining the administration’s priorities for “harnessing the potential benefits” of technologies. emerging.
“I share the president’s urgency to advance research to understand the challenges and opportunities a CBDC could present to American interests,” Yellen said Thursday. “As we consider these big choices, we must also remember that technology-driven financial innovation is inherently cross-border and requires international cooperation.”
The Treasury Department will work alongside officials from the White House and other agencies over the next six months on reports that incorporate recommendations related to the goals of the order, Yellen said.
In that vein, Yellen said Thursday that she was guided by five central “lessons” intended to balance innovation and risk:
- The financial system benefits from responsible innovation.
- The most vulnerable populations are the most affected when regulation does not follow innovation.
- Regulation should be risk and activity based rather than technology based.
- The United States benefits from the central role of the dollar in global finance.
- Policy makers, business people, advocates, academics, inventors and citizens must work together to ensure that innovation is responsible.
In favor of innovation, “many transactions still take too long to settle,” Yellen said, citing that Americans — disproportionately those in lower income brackets — spend about $15 billion each year on services. such as check cashing and payday loans to cover time-based inefficiencies. .
Digital asset advocates promote a vision in which transactions will be instantaneous and cross-border payment costs low, regardless of where the transfer takes place or who is involved, Yellen said, but “processing time, cost and barriers technologies to access will have to be overcome.”
To that end, the Federal Reserve’s FedNow system, a real-time payment platform expected to launch next year, could provide a solution in the United States, Yellen said.
As technologies emerge, policymakers, regulators and businesses must stay prepared for changes in the structure of financial markets, Yellen said.
“Some have suggested that distributed ledger technology could reduce concentration in financial markets,” she said. “While this may make markets less vulnerable to the failure of a particular company, it is essential to ensure that we maintain visibility into potential accumulations of systemic risk and that we continue to have effective tools in place to repress excesses where they occur.”
Regulation should also be “technology-neutral,” Yellen said.
“Consumers, investors and businesses must be protected against fraud and misrepresentation, whether assets are stored on a balance sheet or in a distributed ledger,” she said. “Similarly, companies that hold customer assets should be required to ensure that those assets are not lost, stolen, or used without the customer’s permission.”
Yellen’s personal stance towards digital assets has seemed to soften in recent years. She called herself “not a fan” of cryptocurrency in 2018, according to American bankerbut said last month that she had “a bit of skepticism” about digital assets.
The Treasury Secretary isn’t the only official to detail her CBDC must-haves. Fed Chairman Jerome Powell said last month that a U.S. digital dollar should guarantee user privacy, be “verifiable of identity”, be “intermediary” and be widely accepted as a means of payment. The central bank’s Boston satellite released a white paper in February, detailing the first phase of its research into a CBDC. A few weeks earlier, the Fed released a draft CBDC document intended to solicit public comment, but the report made no policy recommendations.
Yellen, in his comments on Thursday, referred to stablecoins – digital assets pegged to the dollar at a one-to-one value. She said the Treasury Department worked with the President’s Financial Markets Task Force (PWG), the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency to study them – and that the PWG was working with Congress on legislation to ensure that stablecoins are resistant to risk and working globally to make regulation and supervision consistent .