Authors: Michael Bacina, Steven Pettigrove, Jake Huang, Lola Hickey, Luke Misthos
The Reserve Bank of Australia (RBA) has confirmed that Australia’s Council of Financial Regulators (CFR) is working on options to incorporate payment stablecoins into the regulatory framework for stored-value facilities. A stablecoin is a type of crypto-asset that is intended to hold a stable value relative to a certain unit of account or store of value, such as a fiat currency or commodity. The CFR’s work forms part of a wider package intended to reform and modernise Australia’s financial and payments system.
The planned stablecoin reforms were confirmed in an RBA report on stablecoins released last Thursday. The RBA report recognises that:
Stablecoins have the potential to enhance the efficiency and functionality of a range of payment and other financial services.
The CFR’s intention is to undergo significant work with the purposes of implementing stablecoins into the ordinary payment system without excessive risk exposure. These risks including market and liquidity risks, operational risks and risks to financial stability, including financial institutions and funding markets.
In its report, the RBA reiterated the importance of developing an appropriate framework for stablecoins:
Consistent with the international focus, the CFR has agreed that developing a framework for regulating ‘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.
The RBA’s report follows the release, in September, of Senator Andrew Bragg’s draft Digital Assets (Market Regulation) bill. That bill proposed a licensing regime for digital asset platforms, custody services and stablecoin issuers.
The RBA’s report follows several previous comments praising the potential of stablecoins. At a conference in September, Ellis Connolly, the Head of the RBA’s Payments Policy Department, said the central bank:
Sees potential for well-designed, well-regulated stablecoins to make a contribution to providing better services for Australian households and businesses… [it’s] really important that we get the regulation of this right.
The RBA’s Governor, Dr Philip Lowe, also praised stablecoins in a speech on the sidelines of the G20 meeting in Bali in July identifying stablecoins as:
the one piece of the crypto landscape where I think there is real promise.
The RBA’s comments will instil confidence among a number of financial institutions and fintechs which are piloting or have launched Australian dollar stablecoin offerings. We expect further developments in early 2023 as the Government seeks to finalise its Strategic Plan for the future of Australia’s payment system.
