Banking News

Trusted Stablecoin Framework in Motion - RBA

(14 December 2022 – Australia) As stablecoins become widely used as a means of payment, regulators in Australia including the Reserve Bank of Australia (RBA) are preparing to regulate them explicitly.

Australian financial regulators are canvassing regulatory settings for incorporating payment stablecoins for stored-value facilities as part of broader reforms to the payments regulatory framework. The Reserve Bank of Australia published a report on stablecoins, assessing their recent developments, risks and regulatory prospects.

Despite the high attention given to risks, the report is quite optimistic in acknowledging that “stablecoins have the potential to enhance the efficiency and functionality of a range of payment and other financial services.” The RBA emphasises the “particular fragility of algorithmic stablecoins”, whose stability depends on investors’ confidence in the value of an unbacked crypto-asset, and cited the example of Terra collapse. Developing a framework for payment stablecoins is a priority in the near term given the potential for these arrangements to become widely used as a means of payment and a store of value.

“Our central bank digital currency (CBDC) pilot program in Australia has received more than 140 use case proposals from the finance industry, noting considerable stability concerns for example in the potential for CBDCs to displace the Australian Dollar (AUD) and avoiding the commercial banking system entirely” commented RBA Assistant Governor Brad Jones.

Goldman Sachs Chairman and CEO David Solomon recently discussed the future of blockchain in The Wall Street Journal - "It took six days for a cryptocurrency exchange to go from a liquidity crunch to the throes of bankruptcy. The swift collapse raised doubts about cryptocurrencies and blockchain technology, the software behind crypto assets. As a long time participant in financial markets, I still see blockchain as a promising technology if allowed to innovate under the right conditions. Under the guidance of a regulated financial institution like ours, blockchain innovations can flourish."

"Unlike other waves of innovation, blockchain technology came in and disrupted heavily regulated industries. The invention of email didn’t make FedEx or UPS obsolete. But blockchain technologies such as peer-to-peer payments and the tokenization of traditional assets are changing corporations, from how they raise money to how investors trade stocks. This has far-reaching implications for the global economy."

"The technology is already making our own work more efficient. Using blockchain, we’ve been building trading platforms where clients can trade with each other in minutes. By cutting down each trade’s processing time from hours or even days, we’re freeing up capital that would otherwise be locked in limbo."

What’s holding CFOs back from incorporating blockchain and stablecoin technology? East & Partners and Payments Cards & Mobile partnered to create the world’s first guide to developing future strategies for corporate, B2B and consumer payments. “The Great Switch: Major Corporates are Ready for Blockchain – but can Banks Deliver?” report is available now.