Governor of the Reserve Bank of Australia prefers privately-issued tokens over CBDCs

Phillip Lowe, the governor of the Australian central bank, said at a G20 gathering that regulated private tokens may be superior to Central Bank Digital Currencies.

The chief of the Hong Kong Monetary Authority, who joined Lowe on a panel at the G20 summit, said that regulating these private tokens is essential for mitigating the dangers presented by decentralised finance.

According to a recent poll by the Bank for International Settlements, ninety percent of the world’s central banks are moving toward issuing their own digital money. Some are still in the process of research. Some are in the pilot phase, while others are available for wholesale or retail distribution. Wholesale tokens are traded between banks, whereas customers use retail tokens.

The USDT token released by Tether, the USDC token produced by Circle and the Pax Dollar token issued by The Paxos Trust are examples of privately issued permits. Private token issuers must maintain reserves sufficient to deliver one U.S. dollar per redeemed token.

Regulators sceptical of stablecoins

After the failure of the TerraUSD stablecoin, authorities have been wary of stablecoins, particularly algorithmic stablecoins. Authored by Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.), the Responsible Financial Innovation Act restricts the issue of stablecoins to those backed by enough reserves.

According to Lowe, private tokens must be guaranteed by the government, and deposits into issuers such as Circle must be regulated similarly to bank deposits. Lowe is convinced that the personal approach is superior to a digital currency issued by a central bank, provided that laws can keep up. He argues that the private sector is more adept at developing innovative token features and that establishing a CBDC would be expensive for the central bank.

Eddie Yue, CEO of the Hong Kong Monetary Authority, concurred. Since stablecoins are often used to acquire other crypto tokens, which are subsequently utilised in decentralised finance operations, he said that better supervision of stablecoins might avert disasters in the DeFi area. Yue said that regulating stablecoins would be preferable to handling the DeFi space and related goods. He said that he doesn’t believe DeFi will disappear any time soon and that it may become crucial technology to monitor for future financial innovation.

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