Crypto enthusiasts understand the value of stablecoins in the realm of cryptocurrency, and that is the reason behind its significant $136.8 billion market capitalization. Recently, New Zealand’s central bank governor, Adrian Orr, issued a warning for cryptocurrencies, especially stablecoins, citing that there is no substitute for fiat money.
New Zealand’s governor’s view on Stablecoin
The reason behind, Adrian’s awful words for stablecoin is the significant price fluctuation of TrueUSD and USDC earlier. On Monday, Governor Adrian told parliamentary committees in Wellington that “Stablecoins are not stable.” By looking at this statement by Orr, it seems like stablecoins are misleading.
Orr also highlighted that stablecoins can be affected by issues in the traditional financial system and may pose risks to real-world markets. When asked about central banks’ worries regarding independent digital currencies damaging the global financial system, Orr responded with a strong affirmation, stating that they are “critically concerned.”
He pointed out that the promises made by these alternative forms of currency often don’t match the reality, especially when compared to the reliability of central bank-issued cash. Regarding Bitcoin, Orr clarified that it is not a practical means of exchange, a store of value, or a unit of account. While acknowledging that Bitcoin serves other purposes, he highlighted that it is not a substitute for, or even a complement to, central bank money.
FED and New Zealand’s stance on Stablecoin
Besides New Zealand’s central bank governor, on Saturday, the US Federal Reserve also expressed concern for stablecoins. For instance, during a crisis involving Silicon Valley Bank, which held part of the reserves for Circle’s stablecoin (USDC), its value dropped below $1. The fear is that instability in stablecoins might lead crypto enthusiasts to move money back to regulated markets, impacting the Fed’s decision-making on interest rates.
The stability of stablecoins has also been affected by events like the collapse of Terra UST, the FTX crisis, regulatory actions, and security breaches in decentralized finance (DeFi) protocols.
Due to a lack of transparency about the reserves backing stablecoins, many investors have sold their holdings. As a result, the total market value of stablecoins has decreased from over $180 billion in 2022 to around $120 billion in 2023, reflecting a shift in investor confidence.
