May 29, 2024
New Zealand Central Bank Chief Slams Stablecoins as 'Biggest Misnomers
Policy & Regulation

New Zealand Central Bank Chief Slams Stablecoins as ‘Biggest Misnomers

Adrian Orr, the governor of the Reserve Bank of New Zealand (RBNZ), has launched a scathing critique against stablecoins, dismissing them as unreliable substitutes for fiat money and challenging their very name.

Addressing a parliamentary finance committee on February 12, Orr expressed vehement scepticism towards stablecoins, asserting that they are “the biggest misnomers” and “oxymorons.” He underscored his concerns, stating that stablecoins are “not stable” and are only as dependable as the financial health of the entity backing them.

In response to a query regarding the RBNZ’s stance on decentralized digital currencies and stablecoins, Orr emphasized the central bank’s critical concern, highlighting the inherent instability of such assets. He drew a parallel between stablecoins and Bitcoin, arguing that both fail to fulfil the fundamental functions of money, namely serving as a medium of exchange, a store of value, and a unit of account.

“Fiat currencies, such as the New Zealand dollar, derive their credibility from the authority of parliament and the oversight of an independent central bank, ensuring low and stable inflation,” Orr stated, defending the legitimacy of traditional currencies.

Asserting the need for transparency and clarity, Orr reiterated that stablecoins are speculative assets rather than bona fide currencies or central bank-backed cash. He cited ongoing regulatory efforts in jurisdictions like the United Kingdom as evidence of a growing international consensus on the need for robust oversight of stablecoin markets.

This critical stance towards stablecoins comes amidst a broader exploration of digital currency initiatives by New Zealand authorities. A parliamentary report in August 2023 advised against hasty regulation of cryptocurrencies, urging for coherent and consistent guidance within the existing legal framework.

Currently, New Zealand is actively examining the feasibility and implications of a central bank digital currency (CBDC), evaluating potential design options and weighing their costs and benefits, as detailed in a July 2023 report.

As debates surrounding the regulation and adoption of digital currencies continue to unfold globally, Orr’s remarks reflect a cautious approach by New Zealand authorities towards the evolving landscape of financial innovation and digital assets.

Image: Wikimedia Commons

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