Yellen nods to crypto's disruptive pressure, but says sovereign money is king
For a thoughtful prognosis for crypto in the developed world, you could do worse than to read the Secretary of the Treasury's speech on digital assets at American University last week.
Why it matters: Yellen seemed to acknowledge that cryptocurrency has put pressure on the global financial system to speed itself up and cut its costs to end users — without any suggestion, however, that the system can't fix itself.
- What they're saying: "People have a wide range of views when it comes to digital assets," Yellen said in her remarks Thursday. To say the least about the most.
Details: She highlighted two key shortcomings in finance as we know it, but then she also drew a very firm line.
Settlement. "Although new technologies have made our financial system more efficient, for most Americans, many transactions still take too long to settle," she said.
- We've all had those moments when we send money somewhere, the other party doesn't see it soon enough, and headaches ensue. Such delays cost the financially distressed the most, as the secretary notes.
- Bitcoin can settle any amount, anywhere, in about 10 minutes. Basically every cryptocurrency invented since bitcoin can do it even faster.
Yes, but: Crypto's ascent might simply be the kick in the pants needed to speed up the existing system.
- For example, the Fed will soon release a turbo boost called FedNow — a system to make traditional transfer payments almost instant, blunting one of the main appeals of cryptocurrencies.
International payments. It's pricey for money to cross national borders, and it's even pricier for people transacting with the developing world.
- Blockchains impose the same transaction costs no matter what nation a user lives in, and they have no concept of national borders.
Yes, but: "Will the technology live up to that promise? I think it’s too early to tell," Yellen said. "Issues like processing time, cost and technological barriers to access will need to be overcome."
Reality check: The secretary has no interest in conceding one core point to crypto.
- "Sovereign money is the core of a well-functioning financial system," she said.
- In other words, nation-states — not robots on the internet — are the right stewards of money.
- Countering the Bitcoin-as-protest argument, Sec. Yellen supplied a detailed history of money in the U.S., arguing that it has developed in a largely grassroots process from which emerged the most useful financial system in the world.
The bottom line: "When regulation fails to keep pace with innovation, vulnerable people often suffer the greatest harm," she said.
- Whether you love crypto or hate it, you can read that line differently. Any which way, you're probably not completely wrong.