StablecoinsAccording to Bank of Australia Governor Philip Lowe, private firms’ stablecoins could be superior to central bank-issued digital currencies (CBDC). The comparison is better if the businesses are properly regulated. Phillip Lowe feels there are dangers in dealing with cryptocurrency that strong regulations may reduce, but private companies should create the technology.
Stablecoins issued privately are better than CBDCs, Says Lowe
In a speech on Sunday at a G20 finance ministry and central bank governor conference in Bali, Phillip Lowe, the Reserve Bank of Australia’s governor, was hesitant to use the words “cryptocurrency” or “asset,” claiming that they did not have any monetary qualities.
According to a Reuters report on July 17, officials from other nations discussed the influence of stablecoins and decentralized finance (DeFi) on global financial structures. Depegging events are the most recent risks associated with stablecoins.
In May, the Terra USD stablecoin UST, which has since been renamed Terra Classic USD (USTC), lost its peg and caused the market value of the whole Terra Classic ecosystem to plummet. It triggered a multi-billion dollar cascading effect that led Tether (USDT) to temporarily de-peg from DEI’s stablecoin.
Lowe believes private money has several issues, and businesses always wish to use the state-backed currency. However, he also thinks that companies are more likely to develop successful stablecoins linked to traditional currencies than governments unless rules are in place.
If these tokens are going to be used widely by the community, they are going to need to be backed by the state or regulated just as we regulate bank deposits. I tend to think that the private solution is going to be better if we can get the regulatory arrangements right – because the private sector is better than the central bank at innovating and designing features for these tokens, and there are also likely to be very significant costs for the central bank setting up a digital token system.
Philip Lowe
While the regulations would come from the government, Lowe added that it would be ideal if the private sector developed it. In his opinion, private businesses are better than the central bank at inventing new elements for cryptocurrency. He added that the central bank would also have significant expenses in establishing a digital token system.
In other news, Australian officials have advised that a rule book-style framework is the greatest approach to address the dangers associated with crypto. Rather than regulating cryptocurrencies directly, their objective is to regulate crypto exchanges.
The National Association of Federally-Insured Credit Unions, in a letter to the US Commerce Department, expressed Lowe’s disapproval about putting a digital token at central banks because of the steep expense.
However, countries currently developing or experimenting with central bank digital currencies (CBDC), such as China, the European Union, and the Bahamas, haven’t shared their views on the expenses of digital token systems at central banks.
G20 nations on stablecoin regulations
At the same G20 summit, the Hong Kong Monetary Authority’s Eddie Yue agreed with Lowe’s that stablecoins should be subjected to greater scrutiny. He argued that reliable stablecoins would lessen risks in DeFi, where they serve as the primary transaction currency.
Yue said, when referring to DeFi and stablecoins, that the technology and the business innovation behind these developments are likely critical for our future financial system.
Figures from the G20 countries declared that cross-border collaboration and stablecoins regulation were vital, as did government officials from the larger 20 economies. The G20 meeting was held in Indonesia from July 15–16. In addition, central bank directors and finance ministers reaffirmed their commitment to cooperation, which has been a major topic of discussion in recent months.
The meeting addressed issues relating to the present geopolitical issue, including the effects of the pandemic, the war in Ukraine, food, and energy supply chain concerns, and sky-high inflation. Public notice regarding cross-border cooperation and stablecoin regulation said:
All parties support strengthening coordination in the implementation of relevant international standards, focusing on preventing cross-border spills and maintaining global financial stability. All parties support the continued implementation of the ‘G20 Cross-border Payment Roadmap’, agree to strengthen cross-border coordination, and strictly supervise various types of crypto assets such as stablecoins.
G20 public statement
With the cryptocurrency market now firmly entrenched in the realm of common knowledge, retail investors and financial institutions are showing much interest in it. For example, El Salvador and the Central African Republic have incorporated it into their economies.
The growing influence of cryptocurrency has prompted legislators to act swiftly. The creation of CBDCs and the use of stablecoins have become crucial components of legislative proposals. Many officials, including US Treasury officials, have addressed this issue.
The Australian government is currently considering whether or not to regulate private cryptocurrencies, with central bank Governor Phillip Lowe even going so far as to say he prefers regulated private tokens over CBDCs. This is not the position that most central bank governors are taking, with a recent Bank for International Settlements poll revealing that 90% of central banks were researching CBDCs.
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