RBA Sees Potential in Stablecoins and CBDCs
The Reserve Bank of Australia (RBA) has acknowledged the potential benefits of emerging business models and technologies such as stablecoins and central bank digital currencies (CBDCs), but also noted potential risks and data-collection challenges. In a submission to an inquiry into a new bill for regulating digital assets, the RBA acknowledged that stablecoins and other digital assets “raise important payments policy issues”. While stablecoin activity in Australia has been relatively limited to date, the RBA sees potential for stablecoins to play a more significant role in the country’s financial system in the future.
Risks and Benefits of Stablecoins
Stablecoins, a type of cryptocurrency tied to a commodity or fiat, are “increasingly considering a broader range of use cases,” according to the RBA. Some banks, for example, have been exploring the use of stablecoins for facilitating cross-border payments and settlement of tokenised asset transactions. However, the RBA acknowledges that stablecoins, like certain stored-value facilities, pose risks to users, including the risk of user losses due to the failure of the issuer to meet their obligations. Therefore, the RBA “strongly supports the development of a modern, risk-based regulatory framework” that provides appropriate safeguards and protections for investors and users.
Regulating CBDCs
The RBA supports the development of regulatory arrangements for stablecoins that support innovation, while providing the necessary safeguards and protections. Furthermore, it is actively engaging in CBDC research but has not decided whether to issue a CBDC in Australia. The RBA and the Digital Finance Cooperative Research Centre (DFCRC) are working together to explore CBDC use cases.
The bill before parliament proposes to collect data on foreign CBDCs from authorised deposit-taking institutions (ADIs). However, the RBA notes that collecting data on foreign CBDCs from ADIs alone may not provide a full picture of Australian residents’ use of foreign CBDCs, as services may also be provided by non-ADI entities. Therefore, appropriate mechanisms must be considered to monitor foreign CBDC use in view of emerging design and other features.
Conclusion: Balancing Risk and Innovation
As with any emerging technology, stablecoins and CBDCs pose both risks and opportunities. The RBA‘s acknowledgment of this fact and its support for modern, risk-based regulatory frameworks is commendable. However, it is also crucial to strike a balance between regulation and innovation to ensure that the potential benefits of these technologies are not stifled by excessive regulation. In conclusion, the RBA‘s submission to the inquiry into regulating digital assets is a positive step towards achieving this balance.
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