Today Reserve Bank of Australia Governor Philip Lowe said the central bank is exploring the pros and cons of stablecoins as an alternative form of digital currency. His comments were made as part of a talk that touched on the Bank’s central bank digital currency (CBDC) work.
Lowe stated, “We are also looking at the pros and cons of an alternative form of a digital Australian dollar – a payments stablecoin that is issued by the private sector, just as banks issue deposits. If we were to go in this direction, the payment stablecoins would need to be backed by a strong regulatory regime, just as applies to deposits.”
In September, Australian Senator Andrew Bragg published a bill to regulate digital assets and stablecoins.
Like many other jurisdictions, Australia’s Council of Financial Regulators (CFR) is working on stablecoin regulation, as reported in March. This is particularly focused on stablecoins used for general payment purposes.
One of Australia’s biggest banks, ANZ, issued a stablecoin around the same timeframe.
Last week, the Reserve Bank of Australia published a report on stablecoins confirming the regulatory work and highlighting the risks to banks. For example, if bank deposits are used as asset backing, a stablecoin run could trigger a bank run. Alternatively, if the backing assets are government securities, there’s a risk these markets could be destabilized in the case of a stablecoin run. Or banks could suffer reputational risks by providing stablecoin-related services if a stablecoin gets into trouble.
Meanwhile, as mentioned by the Governor, Australia is working on an industry pilot program in a joint initiative with the Digital Finance Cooperative Research Centre (DFCRC). While many of the use cases appear to be more focused on institutional applications, a wholesale CBDC, the DFCRC has confirmed it also covers retail CDBC.
On the topic of a retail CBDC, the Governor said today, “We have an open mind as to whether a public policy case will emerge to go in this direction.” Meanwhile, Assistant Governor Brad Jones explored some of the CBDC pros and cons in a speech last week.