Friend, Foe or Frienemy: Will Janet Yellen Embrace Crypto?

11 Dec, 2020
Friend, Foe or Frienemy:  Will Janet Yellen Embrace Crypto?

Actions speak louder than words.  That’s something to keep in mind in the coming months as the crypto universe watches for signs that U.S. Secretary Treasury Nominee Janet Yellen has come around to embracing digital currencies.

We’ve heard the words and she’s not exactly on board with Bitcoin and the growing number of coins that followed: "I will just say outright I am not a fan, and let me tell you why,” Yellen, the former Federal Reserve chair said in 2018.  “I know there are hundreds of cryptocurrencies and maybe something is coming down the line that is more appealing but I think first of all, very few transactions [that] are actually handled by bitcoin, and many of those do take place on bitcoin are illegal, illicit transactions.”

And while Yellen hasn’t made a notable peep about crypto since then, it’s probably safe to say that digital currencies will need to be reckoned with in her new job as Treasury Secretary.  There’s just too much activity going on to ignore the fact that something has come down the line:  stablecoins, Decentralized Finance (DeFi), and the growing interest in Central Bank Digital Currencies (CBDCs).

Yes, Bitcoin remains the big elephant in the crypto room and has sucked up most of the media coverage about cryptocurrencies. No doubt, it will continue to do so in 2021 as its price continues to defy its critics.  And in Yellen’s defense, most of her widely-quoted comments about crypto, made in 2015 and 2017, while she was the Federal Reserve Chair, are focused on Bitcoin.  As the U.S. Feds shut down the Silk Road black market in 2013, closely followed by the Mt. Gox scam in 2014, why would anyone be surprised by these comments from Yellen:

(2015) “We do not interpret bitcoin’s popularity as having a relationship with the public’s view of the Federal Reserve’s conduct of monetary policy.”

(2017) “It is not a stable store of value and it doesn’t constitute legal tender. It is a highly speculative asset.”

Yes, Bitcoin is a highly speculative asset. But flying high in 2020 is the DeFi universe, which offers value that Yellen does recognize:  blockchain.

“[Blockchain] is a very important, new technology that could have implications for the way in which transactions are handled throughout the financial system,” Yellen said in 2017. “We’re looking at it in terms of its promise in some of the technologies we use ourselves and many financial institutions are looking at it. It could make a big difference to the way in which transactions are cleared and settled in the global economy.”

Now that’s a statement that could signal Yellen may end up being a frienemy to cryptocurrencies. And that’s a good thing, considering that the train has already left the station on digital assets.

The global economy was slowly beginning to embrace the impact of digital currencies on the fiat financial systems when the Covid pandemic struck, driving consumers to cashless payments. Financial institutions in countries such as Sweden, Japan, and the European Central Bank took major steps this year in exploring CBDCs, which many see as a defensive posture by these traditional organizations that seek to keep control of the momentary systems.  The Central Bank of the Bahamas launched its “Sand Dollar,” a state-backed virtual currency in October.  China is in the middle of testing its Digital Yuan, dubbed Digital Currency Electronic Payment.

Research published this year by the Bank for International Settlements (BIS) showed that “a full 80% of surveyed central banks are engaging in research, experimentation or development of CBDCs.” Plus , the number of banks “likely to issue a retail CBDC over the medium term (in one to six years) doubled in 2019, to 20%.”

Of course, most crypto fans may cringe over all of this talk about CBDCs and even – Libra!

But let’s face it:  the more mainstream that the idea of digital currencies becomes, the easier it will be for crypto developers to attract and retain new audiences for the products and services that are exploding in the DeFi universe.

Like the current Federal Reserve Chair Jerome Powell, we can expect Yellen will remain cautious in her approach to crypto. The remnants of the Bitcoin scandals and the potential for digital fraud remain issues that can’t be ignored.  Plus, the idea that the U.S. Dollar could be upended as the “gold standard” of the fiat currency world by crypto, well, that’s probably unthinkable to anyone who heads up the Treasury.

Right now, no one can say where Yellen will land when it comes to crypto. She has bigger fish to fry as the U.S. economy continues to be ravaged by the pandemic. But next year should be a different story.  Friend, foe or Frienemy?  Only time will tell.

Joyce Pavia Hanson