Reserve Bank rejects Facebook cryptocurrency Libra
The Reserve Bank of Australia will not allow tech giant Facebook to launch its cryptocurrency Libra in Australia until all risks and regulatory requirements have been mitigated.
And even if these regulatory requirements were met there wouldn't be enough demand for the global stablecoin anyway.
That's according to the RBA'S latest submission to the Senate Select Committee on Financial Technology and Regulatory Technology, which outlined the central bank's position on global 'stablecoins'; cryptocurrencies designed to minimise the volatility of their prices relative to other "stable" assets, in Australia.
"[Stablecoins] raise significant legal and regulatory risks, including to consumer/investor protection, data privacy, monetary policy, and financial stability," the RBA said.
"Accordingly... private sector global stablecoin initiatives should not be permitted to launch until all risks and regulatory requirements have been addressed."
Libra is set to launch sometime this year, however the currency and network do not yet exist. Other than Facebook, notable Libra backers include Calibra, Uber, Spotify and Vodafone, however PayPal, eBay, Mastercard, Stripe, Visa, Mercado Pago and Bookings Holdings left the Libra Association following widely publicised US senate meetings that outlined serious regulatory concerns with the global cryptocurrency.
That said, the RBA believes that Australia's range of low-cost real-time payment methods and non-bank digital players outweigh any demand for global stablecoins like Libra, even if they do overcome these regulatory concerns.
Even still, Australia's central bank said that developments in cryptocurrency technology could potentially impact the RBA's "mandates as the issuer of Australia's banknotes, operator of Australia's real-time gross settlement system, and its responsibilities for the stability of the financial system and the stability and efficiency of the payments system".
Interestingly, the RBA revealed that it had been considering a central bank digital currency (CBDC), a digital version of the Australian dollar, which would be a liability of the central bank rather than a commercial bank.
The electronic currency would rely on blockchain technology, similar to cryptocurrency, and would be convertible at par with other forms of money.
The RBA says there isn't a case for issuing a CBDC just yet; though this could change in the near future.
"The Bank's assessment - like those of most other central banks - is that the case for issuing a CBDC for use by households has not been established," it said.
"However, it may be that greater demand could emerge in times of uncertainty, and if it was easy to switch from commercial bank deposits it is possible that a CBDC could facilitate bank runs at such times."
The Bank warned that CBDCs had the potential to disrupt established financial systems.
"The implication would be that there would be a fall in commercial bank deposits and a reduction in the availability of funds for lending to households and businesses; accordingly, the implications of CBDC for the structure of the financial system would need to be carefully considered," it said.
Nonetheless, the RBA argued that changes and innovations in payment processes could help boost productivity in Australia and help to transition the country towards a digital economy.
"The shift towards more data-rich payments will create opportunities for fintechs and others to develop innovative services that utilise these data to improve convenience, efficiency and reduce risk in the payment system," it said.
In the submission, the RBA also outlined the importance of digital identity services to Australia's developing digital economy.
"In the finance sector, digital identity services could reduce the scope for identity fraud and provide convenient and secure methods for authenticating individuals, including as part of the rollout of 'open banking' - an area where fintechs may be well placed to offer new services utilising customer data," it said.
The RBA said these digital identity services could help to promote competition within fintechs and the financial sector in general, as well as improving processes for customers.