As long as risks are reduced by regulation, according to Phillip Lowe, governor of the Australian central bank, a private solution for cryptocurrencies “is going to be superior.”
According to Phillip Lowe, there are hazards associated with dealing with cryptocurrencies that can be reduced by strict rules, but the technology should be produced by private businesses.
At a recent G20 finance summit in Indonesia, Lowe made a comment. Officials from various nations reportedly spoke about the effects of stablecoins and decentralized finance (DeFi) on international financial institutions, according to Reuters on July 17.
Recent stablecoin dangers can be mostly attributed to depegging occurrences. The value of the entire Terra Classic ecosystem dropped in May when the Terra USD stablecoin UST, which is now known as Terra Classic USD (USTC), lost its peg. It resulted in a multi-billion dollar cascading effect that briefly depegged DEI and Tether (USDT), two stablecoins.
Strong rules or even state support, according to Lowe, could help reduce the hazards to the general population.
“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.”
Although the government would be in charge of the regulations, Lowe pointed out that the private sector would be best suited to develop the technology. According to him, private businesses “innovate” the best characteristics for cryptocurrencies “better than the central bank.”
He added, “there are also likely to be very significant costs for the central bank setting up a digital token system.”
In a letter to the U.S. Commerce Department on July 8, the National Association of Federally-Insured Credit Unions echoed Lowe’s concerns about the high expenses of establishing a digital token at central banks, according to Cointelegraph.
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, concurred with Lowe at the same G20 meeting that stablecoins needed closer examination. In DeFi, where stablecoins serve as the primary transactional currency, he said that dependable stablecoins will lower risks.
Referring to DeFi and stablecoins, Yue said, “the technology and the business innovation behind these developments are likely to be important for our future financial system.”
