Philip Lowe – the governor of the Reserve Bank of Australia – believes that cryptocurrencies issued by private companies may provide greater benefits than central bank digital currencies (CBDCs), but only after the regulations are in place.
CBDC may be a better option
Many central banks around the world are actively exploring the possible launch of a CBDC, which, according to bankers, could develop the financial system and improve the payment network. China, Nigeria, Japan and many other countries are among the countries with the most advanced efforts in this area.
Interestingly for a top central banker, the Governor of the Reserve Bank of Australia, Philip Lowe, argued that digital tokens issued by private entities may have more use cases than those issued by central banking institutions. . In his view, companies are well-connected to the innovation sector, and thus, they better understand the emerging crypto industry.
“I think the private solution will be better – if we can get the regulatory regime right – because the private sector is better than the central bank in innovating and designing the features for these tokens, and there is also the possibility of setting up a digital token system. Very significant cost to the central bank.
However, it is worth noting that some private organizations in the digital asset space have failed in the past, while the assets issued by such companies have caused significant losses to investors.
One example is the collapse of Terra and its algorithmic stablecoin UST and its native token LUNA. To provide maximum protection for consumers, those types of financial products should be strictly monitored by regulators, Lowe warned:
“If these tokens are to be widely used by the community, they will need to be backed by the state or like we regulate bank deposits.”
Australia’s approach to CBDCs
While some countries prefer to test their digital currencies alone, last year, the Reserve Bank of Australia opted to join forces with the central banks of Singapore, Malaysia and South Africa to conduct cross-border transactions using CBDCs.
The main goal of the partners was to determine whether the financial product could improve settlement networks established between nations. Further, central banks expressed hope that appointing a CBDC could reduce the cost of such transactions and make them more accessible.
Fraziali Ismail, Executive Assistant Governor of the Central Bank of Malaysia, said, “The multi-CBDC shared platform…
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