While commenting on the latest G20 finance meeting in Indonesia, Australian central bank Governor Philip Lowe opined that a private sector solution for crypto is a better option but needs to fulfil one condition. All risks must be mitigated by regulators and regulatory actions.
On July 17, Reuters reported that countries participating in the G20 discussed the impact of decentralized finance (DeFi) and stablecoins on global financial systems. To mitigate the risks to the public, Lowe suggested that state backing or strong regulations should do the job.
“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.”
The majority of the recent stablecoin dangers can be linked to de-pegging incidents. The Terra Classic ecosystem’s value decreased as a result of the Terra USD stablecoin UST losing its peg in May. Terra Classic USD (USTC) has since undergone a name change. Tether (USDT) and the DEI stablecoin briefly depegged as a result of the multi-billion dollar domino effect it had.
According to Lowe, technological development should come from the private sector and the implementation of regulations should be left to the government. He says that private companies are “better than the central bank at innovating.” He further said that there were significant costs to the central bank to set up a “digital token system.”
In a letter to the U.S. Commerce Department, the National Association of Federally-Insured Credit Unions agreed with Lowe that the implementation of a digital token at central banks would be expensive.
But nations like China, the European Union, and the Bahamas that are presently developing or testing central bank digital currencies (CBDC) do not share their perspective on the costs of such systems at central banks.
Eddie Yue, the CEO of the Hong Kong Monetary Authority, agreed with Lowe at the same G20 meeting that stablecoins needed closer examination. In DeFi, where stablecoins serve as the primary transactional currency, reliable stablecoins would in turn make the system way less risky.
Image Credits: The Australian