The Governor of the Central Bank of New Zealand is not a fan of stablecoins.
Reserve Bank of New Zealand Governor Adrian Orr raised concerns about digital currencies in a parliamentary committee on Monday (February 12), calling them “the biggest misnomer”, “an oxymoron” and an alternative to fiat currencies. He said that it was not a product.
“Stablecoins are not stable,” said Orr, whose comments were reported by Bloomberg News. They are only as good as the balance sheet of the person offering that stablecoin. ”
As the report points out, critics of stablecoins (which are pegged to another asset and use large reserves to back up their value) argue that the coins themselves have no place in traditional markets. It said it could upend the larger financial system because of the potential damage caused by problems in the financial system.
Orr was asked whether central banks were concerned that independent digital currencies could weaken the global financial system, according to the report.
“The answer is yes, we are very concerned,” he said. “The main reason is that what is advertised on the tin is different from what is claimed to be a replacement for central bank cash.”
Orr added that while Bitcoin is not a medium of exchange, “people still try to use it as a medium of exchange.”
“It has other purposes, but it is in no way a replacement or complement to central bank funds,” he said.
Orr’s comments came days after Treasury Secretary Janet Yellen appeared before the House Financial Services Committee and said there remain concerns about stablecoins.
Yellen said that the Financial Stability Oversight Council monitors a variety of risks, including “digital assets and related risks from operations in crypto asset platforms and stablecoins, potential vulnerabilities due to fluctuations in crypto asset prices, and fraud.” The focus has been on spreading platforms that carry out such activities.” outside of or in compliance with applicable laws and regulations; ”
Yellen also called on Congress to pass legislation to regulate the spot market for crypto assets that are not stablecoins or securities, saying that applicable regulations must be enforced.
“This last point, the distinction between digital holdings that are “not securities,” refers to cryptocurrencies and coins that are holdings intended to be tied to stores of value or used to buy things. focuses on the changes that may be coming. ” PYMNTS wrote last week.
The report also references a two-year-old Federal Reserve blog post entitled “The Future of Payments Isn’t Stablecoins,” which stated that stablecoins’ reserve backing does not tie up assets. , argued that it could reduce liquidity and that tokenized deposits could prove to be a better option.
PYMNTS data from around the same time also found that more than one-third of businesses considered adopting blockchain and crypto/stablecoin solutions to be risky.