Aussie regulators concentrated on stablecoin framework

Key points:

• Reserve Bank of Australia published a report on stablecoins, assessing their near-term development, risks, and regulatory outlook. 
• According to the report, Australian regulators are working to figure out how to incorporate stablecoins into the national payments ecosystem without exposing them to undue risk. 
• The report reiterated that developing a framework for payment stablecoins in the near term is a priority for CFR.
• CBDC pilot program in Australia has received more than 140 use case proposals from the financial industry. 
• However, the central banker warned that this interest in CBDCs could crowd out the Australian dollar and lead people to avoid commercial banks altogether.

Australia's financial regulator is "examining options" to include payment stablecoins in the regulatory framework for stored-value facilities. This incorporation will be part of a wider overhaul of the country's payments regulatory framework.

On December 8, the Reserve Bank of Australia published a report on stablecoins, assessing their near-term development, risks, and regulatory outlook. Despite the particular focus on risk, the report is quite optimistic in acknowledging that “stablecoins have the potential to improve the efficiency and functionality of a range of payments and other financial services.”

According to the report, Australian regulators are “doing a lot of work” to figure out how to incorporate stablecoins into the national payments ecosystem without exposing them to undue risk. Among these risks, the authors cite energy and climate-related impacts, funding market disruptions, increased bank exposures, and liquidity risks.

Emphasizing the particular vulnerability of algorithmic stablecoins, whose stability depends on investor confidence in the value of unsecured crypto assets, the authors cite the Terra crash as an example.

The report reiterated that developing a framework for payment stablecoins in the near term is a priority for CFR, “given the potential for these arrangements to be widely used as a means of payment and store of value.”

In September, local Senator Andrew Bragg released a bill called the Digital Assets (Market Regulation) Bill. The document calls for the introduction of licenses for digital asset exchanges, digital asset custody services, and stablecoin issuers.

Reserve Bank of Australia Deputy Governor Brad Jones recently shared that its central bank digital currency (CBDC) pilot program in Australia has received more than 140 use case proposals from the financial industry. However, the central banker warned that this interest in CBDCs could crowd out the Australian dollar and lead people to avoid commercial banks altogether.