According to a New Zealand central banker, the stability of stablecoins is dependent on the issuer’s financial health and balance sheet.
New Zealand central bank governor Adrian Orr has expressed grave concerns regarding digital assets, stablecoins in particular.
He stated that fiat-pegged stablecoins could never serve as an equivalent to physical fiat currency.
Misconceptions About Stablecoin Stability
Governor of the Reserve Bank of New Zealand Adrian Orr issued a warning regarding the perception of stablecoins’ stability, referring to them as “the biggest misnomers” and “oxymorons.”
On Monday in Wellington, Orr delivered the following remarks during a parliamentary committee session, illuminating the intrinsic dangers linked to stablecoins.
Orr emphasized that stablecoins, which are crypto tokens pegged to other assets, do not consistently maintain a stable value, contrary to their name.
Emphasizing the reliance on the issuer’s balance sheet, he noted that the stability of stablecoins is entirely dependent on the financial health of the entity offering them.
Although stablecoins generally depend on significant reserves to maintain their value, they are still susceptible to disturbances in the conventional financial environment.
In response to economic challenges, a few top central banks have already expressed concerns regarding the capacity of stablecoins to disrupt real-world markets.
In addition, the governor of the Central Bank of New Zealand stated that stablecoins could potentially undermine the global financial system if not monitored.
“Mostly in that what is advertised on the tin is not what is in the tin for these purported alternatives to central bank cash,” he said.
Constraints of Bitcoin as a Currency
Adrian Orr recently contested the idea that Bitcoin could serve as a currency in the mainstream.
Orr argued that Bitcoin fails to satisfy the essential characteristics of a currency, which include functioning as a reliable means of exchange, a secure repository of value, and a standard unit of account.
Also, Orr emphasized that Bitcoin, notwithstanding its widespread usage and extensive popularity in specific spheres, needs to be improved in the essential qualities required to operate efficiently as a currency.
Additionally, he stated that although Bitcoin might have secondary uses, it cannot substitute or even supplement conventional central bank currency.
Orr emphasized the critical significance of fiat currencies, including the New Zealand dollar, assigning their credibility to the support of authoritative legislative bodies and the supervision of esteemed establishments, including autonomous central banks.
Furthermore, as a means of assuring the reliability and stability of fiat currencies, he emphasized the significance of central banks’ customary duty to maintain stable and low inflation.
