Australian central bank Governor Phillip Lowe said that a private solution “is going to be better” for cryptocurrency as long as risks are mitigated through regulation.
Lowe commented at a recent G20 finance meeting in Indonesia. Reuters reported on July 17 that officials from other countries discussed the impact of stablecoins and decentralized finance (DeFi) on global financial systems.
Recent risks associated with stablecoins can largely be chalked up to depegging events. In May, the Terra USD stablecoin UST, which has since changed to Terra Classic USD (USTC), lost its peg and drove down the value of the entire Terra Classic ecosystem. It caused a multi-billion dollar cascade effect leading to Tether (USDT) and the DEI stablecoin briefly depegging.
Lowe suggested that strong regulations or even state backing could help mitigate the risks to the public.
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.
While the regulations would come from the government side, Lowe noted that the technology would be best if it were developed by the private sector. In his view, private companies are “better than the central bank at innovating” the best features for cryptocurrency.
He added, “there are also likely to be very significant costs for the central bank setting up a digital token system.”
The National Association of Federally-Insured Credit Unions shared Lowe’s skepticism about implementing a digital token at central banks due to high costs in a letter to the U.S. Commerce Department, according to Cointelegraph on July 8.
However, his view on the costs of digital token systems at central banks is not echoed by the countries currently developing or experimenting with central bank digital currencies (CBDC), such as China, the European Union, and the Bahamas.
In the same G20 meeting, Hong Kong Monetary Authority CEO Eddie Yue backed Lowe’s opinion that stablecoins should be scrutinized more closely. He said that reliable stablecoins would, in turn, reduce risks in DeFi, where stablecoins act as the main transactional currency.
Referring to DeFi and stablecoins, Yue said, “the technology and the business innovation behind these developments are likely to be important for our future financial system.”