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US Treasury Secretary reiterates need for stablecoin regulation after UST crash

US Treasury Secretary Janet Yellen called on US lawmakers to develop a “consistent federal framework” for stablecoins to address risks to financial stability.

In a Senate Banking Committee hearing Tuesday on the Financial Stability Oversight Council’s annual report to Congress, Yellen reiterated her previous position calling for a regulatory framework for stablecoins, citing a November report by the President’s Working Group on Financial Markets. Additionally, the Treasury Secretary commented on TerraUSD (UST), the third-largest stablecoin by market cap, which fell to $0.67 in the past 24 hours.

“I think [the situation with TerraUSD] just goes to show that this is a fast growing product and there are risks to financial stability and we need a proper framework,” Yellen said.

Pennsylvania Senator Pat Toomey directed questions to Yellen, also noting that UST is an algorithmic stablecoin, “not backed by cash or securities.” The Treasury Secretary added that it is “highly appropriate” to aim for a “single federal framework” for stablecoins by the end of 2022 as the market grows. She urged members of Congress to legislate for such a framework.

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US Treasury Secretary Janet Yellen speaks to members of the Senate Banking Committee on Tuesday

In her written testimony for the hearing, Yellen said the Financial Stability Oversight Council is working on a report consistent with US President Joe Biden’s executive order on digital assets that would identify potential risks to financial stability and gaps in oversight. The order called on several government agencies to coordinate and consolidate policies as part of efforts to develop a national framework for crypto.

Related: Minister Yellen Acknowledges “Benefits of Crypto” Despite Continued Skepticism

Yellen, who has served as Treasury Secretary in the Biden administration since January 2021, previously said that cryptocurrencies are a “particular concern” for the government department, linking many token projects to “illegal funding” and money laundering. Many of their recent public policy statements regarding the crypto space seem to have focused on stablecoins and creating an appropriate regulatory framework.