- AI Crypto Pulse

In a recent parliamentary finance committee meeting, Adrian Orr, the Governor of the Reserve Bank of New Zealand, expressed his concerns over the stability of stablecoins and their ability to function as a legitimate currency. Orr emphasized the inherent risks associated with stablecoins and their reliance on the financial health of the underpinning entities.

The Stability Misconception

Orr referred to stablecoins as “the biggest misnomers” and “oxymorons” due to their questionable stability. The term ‘stablecoin’ suggests a form of digital currency that maintains a stable value by being pegged to traditional assets like fiat currencies. However, Orr disputes this stability, stating, “Stablecoins are not stable. They are only as good as the balance sheet of the person offering that stablecoin.”

Cryptocurrency Skepticism

The Governor’s skepticism extends beyond stablecoins to encompass cryptocurrencies at large, including popular ones like Bitcoin. Orr argues that they fail to fulfill the roles of a reliable means of exchange, store of value, or unit of account. He warns against conflating speculative digital assets with real currency or central bank-backed cash.

Fiat Currency Foundations

Orr contrasts the speculative nature of cryptocurrencies with the strong foundational support behind fiat currencies like the New Zealand dollar, which is backed by legislation and the assurance of the Reserve Bank’s commitment to maintaining low and stable inflation.

Regulatory Perspectives

The Reserve Bank’s stance is part of a broader regulatory effort to address the challenges posed by digital currencies. Orr highlights the UK’s strict regulatory approach as an example of global central bank efforts to assess and address potential risks to the traditional financial system.

New Zealand’s Regulatory Approach

While expressing these concerns, New Zealand remains cautious in its regulatory approach to cryptocurrencies. A parliamentary report from August 2023 advised holding off on hasty regulatory actions, instead advocating for clear and consistent legal guidelines for digital assets.

Exploring a CBDC

New Zealand is also investigating the potential of introducing a central bank digital currency (CBDC). As of July 2023, the country is considering the design options of a CBDC, taking into account the costs and benefits involved.

Global Central Bank Concerns

Orr’s remarks echo the concerns of central banks worldwide about the role and stability of cryptocurrencies within the financial ecosystem. Similar warnings have been issued by other central banks, such as the Reserve Bank of India, particularly regarding the risks to developing economies.