Criticism of stablecoins, decentralized digital currencies, is not diminishing. Recently, Adrian Orr, the governor of the Reserve Bank of New Zealand, joined this group. During a finance committee meeting of parliament on February 12th, Orr expressed his concerns about these digital assets.
Governor Orr described stablecoins as the “greatest misnomer” and an “oxymoron.” He stated that they cannot replace traditional currency and are not stable. According to Orr, stablecoins, which aim to provide price stability by anchoring them to traditional assets, are undermined by doubts about the financial condition of the entities that support them.
Orr also extended his skeptical approach to cryptocurrencies like Bitcoin. According to him, cryptocurrencies do not fulfill the role of a reliable medium of exchange, store of value, or unit of account. The governor highlighted the speculative nature of these digital assets and emphasized that they should not be confused with true currency or central bank cash.
Orr reminded about the fundamental support for fiat currencies like the New Zealand dollar. He expressed the belief that it is important to ensure the statutory backing and independence of the central bank, which is responsible for maintaining low and stable inflation.
The government spokesperson also emphasized that the Reserve Bank of New Zealand (RBNZ) takes a critical approach to stablecoins and cryptocurrencies, which is in line with regulatory trends worldwide. Orr mentioned the UK’s rigorous approach to digital assets. Both New Zealand and many other countries are making efforts to examine and mitigate potential threats that digital currencies may pose to the traditional financial system.
A notable example of this is a parliamentary report from August 2023, which discouraged early regulatory action towards cryptocurrencies. Instead, the report recommended focusing on creating clear and consistent legal guidelines for digital assets.
Given the increasing interest in digital currencies, the RBNZ is also exploring the possibility of introducing its own central bank digital currency (CBDC). The bank has been analyzing the costs and benefits of designing such a currency since July 2023.
Governor Orr’s remarks align with the concerns expressed by other central banks, including the Reserve Bank of India. Central banks worldwide are aware of the potential risks associated with the development of cryptocurrencies and stablecoins. This issue is particularly concerning in developing countries.
New Zealand takes a cautious approach to regulating cryptocurrencies, striving to strike a balance between innovation and risk. It is important for them to establish comprehensive regulations that protect consumers and ensure financial stability. However, it is crucial to remember that the development of digital currency technologies is a global phenomenon, and each country must find its own responses to these challenges.