In a recent G20 finance meeting in Indonesia, Australian central bank Governor Phillip Lowe commented that it would be better if cryptocurrency is left in the hands of private sector — as long as there are regulations present to keep risks at bay. The event gathered officials from every parts of the world to discuss about the effect that stablecoins and decentralised finance (DeFi) has on the global financial systems.
Recent stablecoin-related risks could be mostly caused by depegging events. Case in point, the Terra Classic USD (USTC) — formerly called the Terra USD stablecoin — underwent a depegging. Consequently, the entire Terra Classic ecosystem has crashed down in value. Soon after, Tether (USDT) and the DEI briefly depegged.
Lowe suggested that the risks could be mitigated via strict regulations or state backing. “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,” said Lowe.
The governor remarked that — while the government would be responsible for the regulation — it would be more preferable for the private sector to handle the crypto technology as they are “better than the central bank at innovating”.
Additionally, Lowe thinks that the cost of digital token system development will be extremely steep if the central bank is responsible for it — a sentiment shared by the National Association of Federally-Insured Credit Unions. However, countries like China, the European Union, and the Bahamas think otherwise.
In the same meeting, Lowe has also opined that stablecoins should be kept on a tighter leash, which is supported by the Hong Kong Monetary Authority CRO Eddie Yue. He believes that reliable stablecoins would lower risks in DeFi — where stablecoins serve as the main currency for transactions. Yue added that the “technology and the business innovation behind these developments” would help ensure a better future for their financial system.
