At a G20 finance officials meeting on Sunday, the Governor of the Reserve Bank of Australia (RBA), Dr Philip Lowe, made comments signalling that the central bank believes that the private sector is better equipped to develop the technology for digital tokens pegged to the Australian dollar. This sentiment echoes the RBA's recent 'regulate, not create' ethos.
Lowe identified stablecoins as "the one piece of the crypto landscape where I think there is real promise". He noted that it is quite possible that they will form the basis of privately issued tokenised money and that a "first class regulatory regime" is required to regulate stablecoins like bank deposits.
Despite his praise for privately issued stablecoins, Lowe expressed scepticism that private money could replace State-backed currencies and about cryptocurrencies generally:
New technologies drive waves of innovation, but they also drive waves of speculation... and those waves of speculation often end up in people losing money, particularly people who are not well-informed. I think we’ve seen examples of that just recently.
Lowe continued:
I think it’s unlikely that these various crypto things, not assets or currency, will be used as a form of money... but if they did, then we’d have to be confronting a whole series of very difficult issues...they do need regulation.
Lowe confirmed that the RBA is currently investigating the logistics of how a private-sector issued token could work and whether they should be backed by "high collateral" such as central bank deposits or government securities, or whether issuers are to be regulated in the same way as banks.
Commenting on the costs associated with a central bank issued digital currency, Lowe noted that:
there are also likely to be very significant costs in the central bank, setting up a digital token system. I think it’s going to be better for the private sector to manage those costs.
Lowe also expressed his view that it is too early to determine whether central banks ought to issue a retail central bank digital currency (CBDC) for use by the general public. At this stage, according to Lowe, there exists a stronger case for central banks to issue a wholesale central bank digital currency or act as a central counterparty in a cross-border setting.
It remains to be seen whether Australia will follow India and Russia, which are planning to issue retail CBDCs to the public. The Atlantic Council has reported that 105 countries, representing 95% of global GDP are exploring a CBDC, including 19 of the G20 countries. 16 members of the G20 are currently developing or piloting a CBDC, including Canada, Brazil, the EU, South Africa, China, Japan and South Korea.