Key Takeaways
- Yellen notes the run on UST stablecoin points to cryptocurrency’s risk to financial stability.
- She stated that it’s “highly appropriate” that Congress comes up with new stablecoin legislation by 2022 end.
- The comments were made during testimony before a U.S. Senate panel on 10th May.
U.S. Treasury Secretary Janet Yellen, as requested by US President Joe Biden’s executive order on digital assets, noted that the Treasury Department will soon be issuing a comprehensive report shortly that points to the hazards posed by the cryptocurrency sector.
She also focused on the ongoing slip stablecoin UST has been facing during her testimony before a U.S. Senate panel on May 10. Her statements comes hours after the purportedly dollar-pegged token reached a low of $0.65, and at least one platform stopped trading.
As the Senate Banking Committee hosted a hearing on risks to the stability of the U.S. financial system, she said that the UST “experienced a run and had declined in value.”
Sen. Pat Toomey, the ranking Republican in the panel who has constantly been pushing legislation to establish stablecoin oversight, also quickly pointed out that UST is an algorithmic stablecoin.
In response to questioning on stablecoins from Senator Pat Toomey (R-PA) at a May 10 hearing, Yellen reinstated that “it is important, even urgent” that Congress pass stablecoin legislation. She further called it “highly appropriate” that Congress do so by the end of the year. Yellen asks for new stablecoin legislation by 2022 end. “I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability, and we need a framework that’s appropriate,” she noted.
While talking about soon to be issued report on cryptocurrency dangers,she added that the dangers posed by stablecoins have been already detailed by the President’s Working Group on Financial Markets.
“There we see run risks which could threaten financial stability – risks associated with the payment system and its integrity and also risks associated with increased concentration if stablecoins are issued by companies that already have substantial market power. We definitely see significant risks here”, stated Yellen. The US Secretary ended her testimony by stating that the Council will remain committed to its mission of identifying as well as responding to risks to U.S. financial stability.
Yellen commenting on the TerraUSD market atmosphere, noted, “A stablecoin known as TerraUSD experienced a run and declined in value. I think that this simply illustrates that this is a rapidly growing product and there are rapidly growing risks.” TerraUSD broke its peg with the dollar over the last weekend, and the stablecoin plummeted to a low of 69 cents on May 9 before recovering to about 90 cents Tuesday afternoon, a move that some analysts state has helped further exacerbate the decline in the price of bitcoin BTCUSD, 1.29%.
The hearing primarily focused on the work of the Financial Stability Oversight Council, a supervisory regulator that the Treasury Secretary presides over.In November last year, US President Joe Biden’s Working Group on Financial Markets issued a report calling on Congress to require that stablecoins be issued by federally regulated banks to help instill investor confidence.
Here is the full video of her testimony before the congress.
