Yellen Changes Tune on Crypto, Moves Dial on Regulatory Debate

Cryptocurrencies are now playing a significant role in America’s financial decision making, Treasury Secretary Janet Yellen said in an interview Friday.

That role, however, still doesn’t have much to do with payments, Yellen told CNBC on March 25.

“Crypto has obviously grown by leaps and bounds,” she said. “And it’s now playing a significant role, not really so much in transactions, but in investment decisions of lots of Americans.”

Aside from acknowledging bitcoin’s move into the investing mainstream, notably by institutional investors and large financial institutions, there was a decided change in tone by the Treasury Secretary when asked “where we are in the crypto conversation.”

See also: Biden’s Executive Order Set to Fast-Track Crypto Policy

Yellen has been a frequent critic of crypto for what she called its “malign uses” by criminals and terrorists during her confirmation hearings, although she has maintained it does have some potential to improve the financial system.

Asked about her previous views during the interview, she said, “I have a little bit of skepticism,” citing “valid concerns” about its impact on financial stability, consumer and investor protection, and of course its role in “illicit transactions.”

The key word there is “little” — something that has crept in after President Biden’s March 10 executive order calling for a rapid cross-agency creation of a single, cohesive policy on cryptocurrency and recommendation for a regulatory framework.

Read more: Yellen: Biden’s Crypto Executive Order Strikes Innovation-Risk Balance

“On the other hand, there have been benefits from crypto, and we recognize that innovation in the payment system can be a healthy thing,” she said Friday. “We would like to come out eventually with recommendations that will create a regulatory environment in which healthy innovation,” is encouraged.

Battling for innovation

The key word there is “innovation” — a word that has come to be at the center of an increasingly partisan congressional debate on cryptocurrency policy that began last year.

It is a word that Republicans have focused on throughout, seeking to set Democrats back on their heels as they focused on consumer protection.

Learn more: Scenes From the Five-Hour Congressional Hearing on Crypto

That seems to have worked, as the executive order helped to reset the debate in some ways, with Biden putting the administration at the center of the actual policy formulation process.

While Sen. Elizabeth Warren (D-Massachusetts) has remained a loudly critical voice, Senator Kristen Gillibrand (D-New York) last week joined forces with Sen. Cynthia Lummis (D-Wyoming), a longtime Bitcoin owner and crypto supportter, to forge a bipartisan bill proposing a specific regulatory framework — and likely creating a starting point for the growing debate that will build as agencies from the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to the FBI work on formulating the administration’s position.

See also: Bipartisan Bill to Give CFTC More Power Over Crypto at SEC’s Expense

Digital dollar unmentioned

What Yellen did not mention during the brief exchange was what is building up to be the centerpiece of any regulatory debate: The use of private stablecoins versus a Fed-issued digital dollar — a central bank digital currency (CBDC) — in the field of payments.

Already a growing number of countries have or are about to ban the use of cryptocurrencies for payments outright. That list starts with China, which is on the verge of issuing a CBDC and has already banned all cryptocurrencies, and runs to India, Indonesia, Malaysia, Turkey and Thailand.

While that move to ban stablecoins doesn’t have much hold in the U.S., a digital dollar would likely be a fierce competitor in the payments field, using the existing infrastructure.

And this is a topic on which Yellen has not shared any thoughts — beyond that she’s thinking about it.

Related: Powell, Yellen Clash Over Stablecoin Regulation at Senate Hearing