Skip to content

Menu

LexBlog, Inc. logo
CommunitySub-MenuPublishersChannelsProductsSub-MenuBlog ProBlog PlusBlog PremierMicrositeSyndication PortalsAboutContactResourcesSubscribeSupport
Join
Search
Close

US Treasury Secretary Janet Yellen Discusses Digitization of the American Economy; States Digital Asset Regulation Should Be “Tech Neutral”

FinTech_1200x600_0005_GettyImages-1043663584
By Keith J. Barnett, Kalama Lui-Kwan, Ethan G. Ostroff, Carlin McCrory & Addison Morgan on April 12, 2022
Email this postTweet this postLike this postShare this post on LinkedIn

On April 7, in front of American University’s Kogod School of Business Center for Innovation, Secretary of the Treasury Janet Yellen addressed the Biden administration’s forthcoming legislative approach to digital assets, as we discussed here, as well as the digitization of the American economy, which Yellen assessed through the lens of five lessons she suggests are often implicated by emerging technologies generally: (1) responsible innovation; (2) appropriate guardrails; (3) monetary sovereignty; (4) technological neutrality; and (5) interagency and international collaboration.

  1. Responsible Innovation. Yellen noted that financial innovation is not novel, and when it presents itself, may be accompanied by unattended consequences. “Innovation that improves our lives while appropriately managing risks should be embraced. But we must also be mindful that ‘financial innovation’ of the past has too often not benefited working families, and has sometimes exacerbated inequality, given rise to illicit finance risks, and increased systemic financial risk.” Today, many working-class Americans remain dependent upon intermediaries, such as check cashers and payday lenders, to obtain swift access to their paychecks in exchange for large processing fees to avoid the up to two-day processing time of banks. Instead of using these intermediaries, consumers may overdraft their accounts to obtain access to funds, incurring bank charges. Yellen stated these fees and services equate to approximately $15 billion spent by Americans annually. Will digital assets catalyze efficiency? Although Yellen believes “it’s too early to tell,” she briefly discussed the Federal Reserve’s plan to launch its proprietary program, FedNow, in 2023. FedNow will enable individuals and businesses to send instant, real-time payments through their depository institution accounts, as we discussed here.
  2. Appropriate Guardrails. Drawing from parallels of subprime mortgage-backed securities involved in the 2008 financial crisis, Yellen advanced that the Biden administration must “ensure that the growth of digital assets does not allow similarly dangerous risks to emerge or lead to disproportionate impacts to vulnerable communities.” Retail investors often trade stablecoins, a category of digital assets that can be pegged to the U.S. dollar, to escape the volatility associated with the broader digital asset market. But as Yellen stated, today, there is no way to confirm whether stablecoin issuers back “their coins with traditional assets that are safe and liquid.”
  3. Technological Neutrality. According to Yellen, “Wherever possible, regulation should be ‘tech neutral.'” Regulations should curb the risks associated with the services that the technology underlying digital assets provide to consumers and the broader economy; the technology should not be overregulated simply due to its obscurity. For example, Yellen explained that “consumers, investors, and businesses should be protected from fraud and misleading statements regardless of whether assets are stored on a balance sheet or distributed ledger.” Additionally, Yellen concluded that the principle of technological neutrality likewise applies to illegal actions, such as money laundering, tax evasion, and counterterrorism, and the Treasury will “continue to take action when appropriate.”
  4. Monetary Sovereignty and the US’ Role in the Global Economy. Yellen believes that “monetary sovereignty and uniform currency have brought clear benefits for economic growth and stability.” Many proponents of digital assets have conveyed interest in the Federal Reserve designing and developing a central bank digital currency (CBDC) as the next iteration of the U.S. dollar. Furthermore, President Biden’s most recent executive order asserted the administration is placing “the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC.” Yellen notes that the creation of a CBDC presents major challenges that will require years of development. Nevertheless, issuance of a U.S. CBDC will likely hinge on the President’s Working Group devising a solution that enables the dollar to remain internationally prominent, while simultaneously mitigating consumer harm and systemic risk and upholding financial stability.
  5. Value of Collaboration. Due to the internet, the digital asset space is a global financial market. Not only will cooperation between U.S. federal agencies be necessary to foster growth and stability, but the U.S. will also have to work closely with its international partners to effectuate consistent regulations across jurisdictions. Yellen stated that the Treasury has “been working with [its] international counterparts to strengthen AML/CFT programs abroad to better protect against exploitation by illegal actors.”

Our Take. Although Yellen did not provide any explicit insight into how the Treasury will shape digital asset regulation moving forward, she made clear that these technologies will be embraced with keen focus on solutions that mitigate the potential financial instability and illicit activities risks these technologies pose, but do not stifle innovation. As Yellen said, “Digital assets may be new, but many of the issues they present are not. We have enjoyed the benefits of innovation in the past, and we have also confronted some of the unintended consequences.”

Photo of Keith J. Barnett Keith J. Barnett

Keith Barnett is a litigation, investigations (internal and regulatory), and enforcement attorney with more than 15 years of experience representing clients in the financial services and professional liability industries.

Read more about Keith J. BarnettEmailKeith's Linkedin Profile
Photo of Kalama Lui-Kwan Kalama Lui-Kwan

Kalama Lui-Kwan is a Partner in the Financial Services Litigation section of Troutman Sanders. His practice focuses on complex commercial disputes, financial services class actions, compliance matters, and regulatory investigations.

Read more about Kalama Lui-KwanEmail
Photo of Ethan G. Ostroff Ethan G. Ostroff

Ethan specializes in the defense of consumer actions, including class and mass actions, general business litigation, as well as regulatory compliance.

Read more about Ethan G. OstroffEmailEthan G.'s Linkedin Profile
Photo of Carlin McCrory Carlin McCrory

Carlin is a regulatory, compliance, and payments attorney with experience representing financial institutions, fintechs, lenders, debt collectors, payment processors, neobanks, virtual currency companies, and mortgage servicers.

Read more about Carlin McCroryEmail
Addison Morgan

Addison is an associate in the firm’s nationally recognized Consumer Financial Services Practice Group. He has represented several of the nation’s preeminent financial institutions in litigation arising under the Fair Credit Reporting Act (FCRA), the Telephone Consumer Protection Act (TCPA), the Fair Debt…

Addison is an associate in the firm’s nationally recognized Consumer Financial Services Practice Group. He has represented several of the nation’s preeminent financial institutions in litigation arising under the Fair Credit Reporting Act (FCRA), the Telephone Consumer Protection Act (TCPA), the Fair Debt Collection Practices Act (FDCPA), the FTC Holder Rule, and other consumer protection state analogs.

Read more about Addison MorganEmail
Show more Show less
  • Posted in:
    Civil Litigation, Corporate Compliance
  • Blog:
    Regulatory Oversight
  • Organization:
    Troutman Pepper Hamilton Sanders LLP
  • Article: View Original Source

LexBlog, Inc. logo
Facebook LinkedIn Twitter RSS
Real Lawyers
99 Park Row
  • About LexBlog
  • Careers
  • Press
  • Contact LexBlog
  • Privacy Policy
  • Editorial Policy
  • Disclaimer
  • Terms of Service
  • RSS Terms of Service
  • Products
  • Blog Pro
  • Blog Plus
  • Blog Premier
  • Microsite
  • Syndication Portals
  • LexBlog Community
  • 1-800-913-0988
  • Submit a Request
  • Support Center
  • System Status
  • Resource Center

New to the Network

  • Pro Policyholder
  • The Way on FDA
  • Crypto Digest
  • Inside Cybersecurity & Privacy Law
  • La Oficina Legal Ayala Hernández
Copyright © 2022, LexBlog, Inc. All Rights Reserved.
Law blog design & platform by LexBlog LexBlog Logo