Treasury Secretary Janet Yellen spoke recently at American University about digital assets. The speech looked at the intersection of innovation, policy and regulation. John and Elliot discuss key points in the speech including how innovation in the financial sector often outstrips policy and regulation and how Yellen’s remarks create a good framework for the discussions and activities in the digital asset space.



Secretary Yellen Discusses Digital Assets TRANSCRIPT


Elliot Berman: Hi, John, how are you this week?

John Byrne: Hi Elliott. Really good. As we both know, we're working hard toward next week's partnership forum—the first one ever on the east coast. We're very excited about that. So I know you've been working really hard with the team on Last-minute topics and issues. And, you know, this is going to set the stage for, you know, a place on the east coast where law enforcement, bankers, and FinTech execs and others can connect.

So I know that's top of mind for both of us. 

Elliot Berman: Yes. And I'll put in the shameless plug. There's still time to register for the forum. You can go to, and if you go, there's a big red registration register now tab there. Please do so. We're going to be at the Mayflower Hotel on Connecticut Avenue, and we do truly have a great program lined up. Big senior people from the agencies and practitioners talk practically and exchange information and get smarter from having been with the others.

So, looking forward to it. So for this week's podcast, I'm sure you saw Secretary Yellen's remarks late last week on digital assets, a continuing topic in the regulatory universe.

John Byrne: Right. And that's obviously also something that we'll be covering next week—the various crypto responses from all the law enforcement agencies.

Yeah. The speech was delivered locally at American University. And she mentioned a few things that I thought [were] definitely relevant to our world. One is the president signed that executive order a couple of weeks ago. And I know we've talked about that briefly from a government-wide approach to digital asset policy.

And so, she raised a number of things that are going on. She gave a historical background of payment issues, but how important it was to be open to both innovation and to recognize that you don't base your regulation on technology alone but on utility. So I thought it was a useful outline.

I think the secretary's views are sort of government-wide, and I think the list of lessons that she had there is particularly relevant.

Elliot Berman: Yeah. Agreed. And it reminded me, you know, she was on the board of governors of the federal reserve. Now she's a cabinet secretary, but she is an academic, and I mean that in the best way, you know, this could have been a lecture to a graduate class on monetary policy.

John Byrne: Yeah, that's right. One of the things that is useful to understand in terms of the themes that she said is that we've already sort of mentioned the importance of technology, but not to overreact to technology, to sort of stay ahead of the game.

And she referenced the 2008 financial crisis and all the new products and how frankly, the government really didn't keep up to speed with them. And they want to make sure that they don't make the same mistakes this time.

Elliot Berman: Yes. Agreed. She also mentioned that part of this was about innovation. She used a phrase of what she called her very final lesson in the title that we need to work together to ensure responsible innovation. And I think that's a good phrase. You know, many kinds of innovation can happen. And, you know, I think her point is just because we know how we can figure out how to do it from a policy perspective, you still have to figure out, does it make sense to have it done?

And if it does, does it need a framework? And that, in fact, is what governmental policy and governmental regulation is. It's a framework within which all kinds of innovation operate. We think of the kind of innovation that's happening today, but most of the things that we take care of [and] take for granted, even think of as old school, they were innovations at a time, you know?

And some of them not all that long ago. I mean, you and I certainly grew up without having a personal mobile phone. If someone had a mobile phone, it was this big honking thing in their car. And it took up the actual transmitter took up half the car's trunk. And there were about five people in the world that had them.

But now we all have them in our pockets, and we take them for granted, but it was innovation, and it did grow up within the framework of telecommunications policy and regulations. So, as we all move forward, I think the government's looking at this, and people are saying it's stifling innovation. I think it is a part of how innovation actually happens. It sometimes happens ahead and sometimes within the structure of how does it fit into everything else?

John Byrne: Besides very comprehensive comments, some very simple themes, right? She said about the technology being neutral and encouraging innovation.

It's illegal to evade taxes, launder money, or avoid sanctions. And it doesn't matter whether you're using checks, wires, or crypto. So I think that's pretty important to recognize because a lot of people are sort of on both sides of this, rather than in the middle. Some are saying this is the greatest thing [and] it's going to make inclusion and financial access available to everybody.

And then on the other side, it says, we're never going to figure out what the criminals are doing. And the answer is sort of in the middle like it is with everything. And she goes into specifics, referencing anti-money laundering and CTF frameworks. As you referenced, working with our international counterparts.

And then one of the examples in here, she said just this week, OFAC took strong action against the world's largest darknet market Hydra, ransomware enabling virtual currency exchange. So, you know, just an example of all that.

And then she references what we talked about a couple of weeks ago, the national risk assessment. She says that based on the task force and all the work we're doing, we're going to build on that risk assessment that identifies key illicit financing risks associated with digital assets. So again, working globally, working with the private sector, which they referenced, and encouraging innovation, are all great goals. Still, as long as that's the strategy, all those referenced groups should be at the table trying to figure this out as opposed to saying don't regulate us, you know, don't limit what we're trying to do instead offer up that you understand that these challenges need to be met.

Elliot Berman: Yes. As you pointed out a little earlier in our conversation, this was a worthwhile read, and it's not terribly long, but it's a worthwhile read because it does a nice job of blending history and creating a lot of contexts. I think for the conversations that have been ongoing in the industry and at the policy level for a while, they're accelerating. She talks a little bit about the central bank digital currencies. In terms of regular commerce, she talks about how it may not be all that practical for cryptocurrencies to be used in regular commerce. She says to buy a sandwich or a gallon of milk. She talks about other digital assets, like stablecoins or potential central bank digital currencies, which could succeed. There's a quote, "at being more widely used as a means of exchange, raising potential benefits and risks."

The whole idea that she recognizes that because of the volatility, among other things, cryptocurrencies may not be a practical long-term way to do regular commerce, and her reference here is to buy a sandwich or a gallon of milk. Still, digital assets, and like other digital assets, stablecoins or potentially central bank digital currencies, could succeed in being used as a regular day-to-day means of exchange, raising benefits and risks potentially.

Again, beyond that, I was just saying that this was a good piece to read and get context for all of the conversations that are going on.

John Byrne: I agree.

Elliot Berman: So let's see, we've got a webinar coming up. On the 28th of April, at 1:00 PM Eastern time live stream, you can register on our website.

It's about domestic terrorism. We will look at it not just from the US but from a global perspective. We've got a couple of great panelists and guests who will be chatting with us. Well-known experts. So we'd like to have you join that. And then, John, next month, we're doing a webinar on the national priorities.

John Byrne: Yeah, the hope is that the regs will be out by then. So it's not tentative in terms of the schedule, but we may make a last-minute adjustment if we think it's going to come, you know, in the following month. But if it does come, we have some chance to talk about it. We've done a lot of programming on priorities conferences as well. Obviously, we're looking very carefully at what they will look like. And will they recognize what FinCEN said they would? And that is not all priorities for all institutions should be treated the same.

Elliot Berman: Yes. Okay. Well, you have a great rest of the week, I will see you next week, and we'll probably have to find a few minutes while we're at the forum to sit down and record for our session next week.

John Byrne: Sounds good. Take care. Stay safe.

Elliot Berman: Yep. You too. Bye-by