Janet Yellen: Stablecoins Are Not “Financial Stability Concerns”

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  • U.S. Treasury Secretary Janet Yellen has said that stablecoins do not pose “financial stability concerns”
  • The topic of stablecoin regulation has intensified with this week’s Terra USD failure
  • Whether stablecoins do or don’t pose a risk depends on how they are regulated

U.S. Treasury Secretary Janet Yellen has said that cryptocurrency stablecoins are not “financial stability concerns”, despite the collapse of UST this week. Speaking at the House Committee on Financial Services yesterday, Yellen was answering a question on the potential danger posed to the U.S. economy by the stablecoin movement, to which she responded by saying that, in essence, the stablecoin market is not yet big enough to trouble the U.S. economy.

Stablecoins Not Yet at Problematic Scale

Yellen’s appearance before the committee was peppered with questions over stablecoins and how to regulate them, especially in the wake of the Terra USD collapse which has left people worldwide down by six figures or more.

When the subject of the risks that stablecoins, and the cryptocurrency movement as a whole, poses to the U.S. economy, Rep. Jim Himes commented that the industry, which is worth around $1.3 trillion, opined that it was not yet big enough to be of huge concern. Yellen agreed to this, noting that “I can’t say [stablecoins] have reached a scale where they’re financial stability concerns.

Regulations Differ With Scale

The importance of this definition is because in the wake of the 2008 crisis, Congress introduced legislation that recognized certain large financial entities, including banks and a lone insurer, insurer AIG, as posing a “systemic risk” to the U.S. economy should they fail. This resulted in a series of oversights, including higher capital reserves, on their business operations.

Clearly, the stablecoin market hasn’t reached this stage yet, which will affect the kind of regulation that will be applied to it. However, with the cryptocurrency space set to continue to grow, there could be a point where it does meet this criteria.

Yellen however declined to say at what level the designation would apply, and there is the possibility that when regulations are finally imposed for stablecoins that they may need to be almost immediately scrapped in favor of other ones.