Central bank digital cash may derail crypto’s run: RBA

Pointing to the Dogecoin bubble this year, Dr Richards told the Australian Corporate Treasury Association on Thursday that when this happens: “Households might be less influenced by fads and a fear of missing out and might start to pay more attention to the warnings of securities regulators and consumer protection agencies in many countries about the risks of investing in something with no issuer, no backing and highly uncertain value.”

In a speech that might be uncomfortable for Commonwealth Bank, which earlier this month said it would make ten cryptocurrencies available for customers to buy in its popular app, Dr Richards warned “the very high use of energy involved in mining proof-of-work cryptocurrencies could attract greater attention from governments and policymakers”.

He also said “there could be greater focus on the (near) anonymity that many cryptocurrencies can offer, and their potential use in facilitating financial crime
and the black economy.”

Central banks including the Reserve Bank are, however, growing more supportive of issuing CBDCs. Dr Richards said he could see several uses for blockchain and pointed to “potential benefits” if central banks issue CBDCs for payment providers to offer customers.

“The [RBA] acknowledges the argument being made internationally that with
all the innovation that is occurring in the payments area, provision of a new digital
form of central bank money for general purpose use could be important for
safeguarding confidence in national monies and the role of fiat currencies at the heart
of monetary, financial and payment systems,” he said.

“By introducing CBDCs, central banks would not be getting into the retail payments business, but they would be providing a riskless and interoperable form of digital money that could potentially stimulate competition between different private-sector service providers.”

This adoption of CBDCs could create dangers for investors in crypto, he warned.

“If there were to be global policy action to deal with some particular concerns about
the use of cryptocurrencies, plus the arrival of new stablecoins and CBDCs that could
safely meet the needs of a wide range of users, existing cryptocurrencies might then
have only niche use cases, at best,” Dr Richards said.

He also questioned the numbers of Australians holding cryptocurrency.

A recent Senate select committee, pointing to material submitted to it, said one in five Australians held crpyto. But Dr Richards said this was likely exaggerated, and he “find these statistics somewhat implausible”.

Commonwealth Bank said its surveys had found 8 per cent of Australian held crypto, and it wanted to increase this by offering 10 versions, including bitcoin and ether, in its banking app.

“Some of the estimates out there are extremely surprising and may be symptomatic of the significant amount of hype and misinformation in this area,” he said.

The RBA and other members of the Council of Financial Regulators are working with AUSTRAC and the ACCC to examine the appropriate regulatory framework for crypto-assets, including stablecoins.

“So I can imagine a future where the establishment of strong regulatory frameworks
for stablecoins could lead to issuance of stablecoins by highly rated entities, and
central banks could move towards issuing CBDCs,” Dr Richards said.

“In either case, they would be denominated in fiat currencies, be safer than existing stablecoins, and would likely have faster, safer and more efficient transaction verification mechanisms than most cryptocurrencies.

“Accordingly, it is likely that they would be viewed as superior instruments for the settlement of transactions in tokenised assets on distributed ledgers.”

In his last speech before retiring, Dr Richards said the topic of the emergence of cryptocurrencies, stablecoins and central bank digital currencies have attached the most discussion, conversation and debate in almost a decade at the central bank. He disclosed he had bought a small amount of bitcoin in 2014, and experimented with it on transfers and some transactions, and then some ether in 2018, and his holdings are “still pretty small”.

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