The governor of Australia’s central bank, Phillip Lowe, has stated that a private solution could be “better” for cryptocurrencies and blockchain technology, as long as the risks in dealing with these sectors can be mitigated by strong and proper regulations, however the tech should be made by private companies.
At a recent congregation at the G20 financial meeting in Indonesia, Lowe let his opinions be known throughout the discussions with other countries on the impact of stablecoins and decentralised finance (DeFi) on current global financial systems.
Recent risks associated with stablecoins can largely be traced back to anchor loss events. In May, the stablecoin TerraUSD (UST), since then renamed TerraUSD Classic (USTC), lost its peg, plummeting the value of the entire ecosystem. This caused a multi-billion dollar cascade effect which led to the depegging of Tether (USDT) and of stablecoin DAI.
It largely contributed to the recent very harsh downtrend in the cryptocurrency market.
Lowe suggested that strong regulations or even state backing could help mitigate the risks to the public, stating “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.”
Although this notion presents that regulation would come from the government, Lowe did note that the technology would be best developed by the private sector. In his mind, the private sector is “better than the central bank at innovating” the best features for cryptocurrency and blockchain.
He also added that it is “It is likely that the central bank will have to incur very significant costs for the creation of a digital token system”.
Cointelegraph reported on July 8, in a letter to the U.S. Department of Commerce, the National Association of Federally-Insured Credit Unions shared Lowe’s scepticism about implementation of a digital token issued by central banks due to the high cost.
However, his opinion on the high costs associated with the issuing of central bank digital currencies (CBDCs) by central banks would not be shared amongst countries such as China, the Bahamas and the European Union who all currently are experimenting with CBDCs.
At the same G20 meeting, Eddie Yue, CEO of Hong Kong Monetary Authority, shared the same opinion of Lowe that stablecoins need to be looked into more closely and scrutinised more heavily. He said reliable stablecoins would in turn reduce the risks in DeFi, where they serve as the primary transaction currency, “the technology and commercial innovation behind these developments are likely to be important to our future financial system.”
Recently ANZ had used their new stablecoin A$DC in a landmark transaction that can be read about here.
