Month: July 2021

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As response to Federal Reserve Chairman Powell’s warning on the freely traded cryptocurrencies, Treas. Sec. Yellen met with the country’s top regulators today. According to the Treasury Department’s announcement, the discussions will focus particularly on stablecoins, since the Federal Reserve Chairman had said that

”We are seeing cryptocurrencies having something like bank deposits, money market funds or for that matter a narrow bank, all rapidly growing without appropriate regulations.”

 

The focus on stablecoin is of particular interest since they are freely transferrable like cash, but have been trading in the cryptocurrencies market as well.

The Treasury Department statement said that the working group set to convene today (Monday) will delve into the regulation of stablecoins to foster its growth and innovations in order to significantly alter the rapid growth of highly volatile cryptocurrencies.

Treasury Secretary Janet Yellen remarked in the statement that their aim in bringing together the top regulators is to assess the potential benefits of stablecoins and to analyze their risks, as well as formulate regulations to mitigate the risks posed to stablecoin users, the trading markets and the financial systems.

The new Treasury Secretary emphasized the importance of collaboration between regulatory agencies in developing regulatory policies that can impact the rapid growth of digital assets. The discussion will also include recommendations for the development of new oversight authorities. Treasury Secretary Yellen expects to receive written recommendations in the coming months.

What are Stablecoins?

 

While stablecoins are a type of cryptocurrency that uses the blockchain technology, they deviate from other digital money because their price value is linked to the value of another asset class like gold or of a specific fiat currency. The purpose of which is to somehow stabilize the price value of each type of stablecoin.

Stablecoins are popular with cryptocurrency investors because the stable nature of their value has made them useful even when trading outside of the volatile cryptocurrencies world. However, they also pose significant risks as some dollar-pegged stablecoins have been found as not actually backed by US dollars, but by combinations of equally volatile assets.

In February of this year, the use of Tether and its associated crypto exchange Bitfinex in New York was banned by NY State Atty. General Letitia James. Mainly because false statements have been made with regard to tether’s currency backing.

Yet stablecoins like other cryptocurrencies open the world to everyone because it dispenses with the need to pass through traditional intermediary institutions like banks, when used for sending payments.

Yet unlike other cryptocurrency of which price values have a tendency to fluctuate wildly in ways that make their values unpredictable, stablecoins enable owners to determine how much their digital asset is worth. This makes stablecoin more practical to use for everyday transactions even outside of the cryptocurrency world.

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