New Zealand central bank governor issues alert on the stability of stablecoins
- New Zealand’s central bank governor has issued an alert on stablecoins saying they are unstable.
- The governor further noted that stablecoins could not be used as an alternative to fiat currency.
- Several global regulators have been pushing for the regulation of stablecoins.
The governor of New Zealand’s central bank, Adrian Orr, has issued an alert on stablecoins saying they are unstable and cannot be a substitute to fiat currency.
While speaking at a parliamentary finance committee on February 12, Orr said the stability of stablecoins relied on the issuer.
“Stablecoins are not stable,” he said. “They’re only as good as the balance sheet of the person offering that stablecoin.”
Not a fan of cryptocurrenciesCopy link to section
Orr was responding to a question on whether cryptocurrencies pose a risk to the global financial system. He noted that cryptocurrencies could not be an alternative to fiat currency used by the central bank as what is advertised by the issuers is not true.
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He further said that the New Zealand central bank was “critically concerned” about the growing popularity of digital currencies.
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His criticism did not solely focus on stablecoins. Orr went ahead and slammed Bitcoin. He noted that the largest cryptocurrency by market capitalization could not be used as a medium of exchange, store of value, or a unit of account. However, despite its limitations in these use cases, people were still using it.
While defending fiat currencies, Orr noted that currencies issued by the central bank had legislative backing. Moreover, fiat is regulated by the central bank, making it stable and less susceptive to inflation.
The central banker noted that Bitcoin and other cryptocurrencies had other purposes, but could never be an alternative to central bank money. According to Orr, private digital currencies were more speculative assets and could be used as currency.
Regulatory push on stablecoinsCopy link to section
Orr’s remarks come amid a regulatory push to regulate stablecoins. In recent years, the stability of stablecoins has been tested. In 2022, Terra’s UST stablecoin lost its peg, leading to the collapse of the entire Terra Luna ecosystem.
In January, True USD lost its peg to the dollar amid concerns about the ability to redeem the stablecoin for fiat currency. TrueUSD is yet to regain its peg.
Given these developments, regulators are now rushing to regulate stablecoin investors and protect users. In October last year, the UK government published a document seeking to regulate fiat-backed stablecoins. The UK plans to introduce regulations this year to bring stablecoins under the regulatory purview of the Financial Conduct Authority (FCA).
Mid-last year, the Reserve Bank of New Zealand said it was ramping up efforts to regulate stablecoins. The bank calls for global collaboration to regulate these assets saying regulatory frameworks could affect the crypto market.