Cryptocurrency collapse prompts Yellen to call for new regulation

WASHINGTON (AP) – Treasury Secretary Janet Yellen, responding to the recent sharp decline in the value of cryptocurrencies, said on Thursday that additional federal regulation was needed to respond to the wave of speculative investments in the currency whose secrecy is an essential part of your appeal. .

“We really need a regulatory framework to protect against risk,” Yellen said of cryptocurrencies called stablecoins during a House committee hearing on Thursday. Citing the rapid increase in the use of digital assets, she added: “We really need a comprehensive framework so there are no regulatory gaps.”

Stable coins are a type of cryptocurrency pegged to a specific value, usually the dollar, another currency, or gold. Its parity with the dollar is what, in theory, makes it stable. However, volatility in the cryptocurrency market this week has challenged that assumption.

“We had a real demonstration of the risks,” she said, referring to the TerraUSD collapse from Monday.

A run – or sale by a large number of owners – in the stable currency Terra, caused it to drop in value from approximately $8 to less than 30 cents.

A Federal Reserve report released on Monday outlines how vulnerable stablecoins are to runs.

“Earth broke the ball and this morning and yesterday the major stable Tether also broke the ball,” referring to another token that dropped below the dollar this week.

Yellen was also asked at the hearing about the root cause of inflation, which has driven up prices, and how the government plans to tackle rising energy, housing and food costs.

She said the government is doing what it can to address supply chain problems and other contributors to inflation.

“We have a very good and strong job market, we have household balance sheets in good shape,” as well as a strong banking sector, Yellen said.

“All these things suggest that the Fed has a way to reduce inflation without causing a recession,” she said.

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