A senior executive at the Reserve Bank of Australia (RBA) pulled no punches as he tore into digital currencies in a recent speech. The executive claimed that their rise is spurred by fear of missing out (FOMO) and they are a fad that will soon come to an end. Disputing the reported number of people who own digital currencies in the country, he further claimed that central bank digital currencies (CBDC) and stablecoins issued by commercial banks would end the era of Bitcoin and other digital currencies.
Australia has become a major digital currency market. According to Finder, one in six Aussies, or about 17% of the population, has invested in digital currencies. Yet another study earlier this year by YouGov found that four million Aussies intended to purchase digital currencies in the next 12 months.
Despite this rise in adoption, the head of payments policy at the RBA, Tony Richards, believes that digital currencies are a passing fad.
In a speech addressed to the Australian Corporate Treasury Association, Richards claimed that the rise in the digital currency’s value is purely down to speculation.
“I think there are plausible scenarios where a range of factors could come together to significantly challenge the current fervour for cryptocurrencies, so that the current speculative demand could begin to reverse, and much of the price increases of recent years could be unwound,” he said.
Richards, who is stepping down from his position at the RBA this year, further cast doubt on the digital currency ownership numbers that many independent studies have suggested. He said these numbers are likely being exaggerated to fit an agenda.
“I must say that I find these statistics somewhat implausible. Some of the estimates out there are extremely surprising and may be symptomatic of the significant amount of hype and misinformation in this area,” Richards added.
However, even as he casts doubt on the numbers, the country’s largest bank has recently made digital currencies available on its mobile app. The Commonwealth Bank stated that the high interest in digital currencies was a key reason it offered them.
Richards believes that the move was a mistake for the bank. He said that Australia’s biggest bank dabbling in an asset class ‘whose biggest use is in illegal payments’ is a source of concern for regulators. Digital currencies remain “the payment method of choice for ransoms, and it is also a place where it is possible to have a high degree of anonymity in holdings.”
“So I think there are genuine concerns raised about the fact cryptocurrencies can be used to facilitate financial crime, and I would suspect that is something the policy authorities around the world will pay attention to … It is absolutely a concern,” he added.
Despite the move by Commonwealth being a concern for the RBA, the central bank will not step in. Richards believes that the Australian Securities and Investment Commission is more suited to dealing with these concerns. The Australian Prudential Regulation Authority also has more jurisdictional authority over the issue than the RBA, he stated.
‘Regulations, CBDCs and stablecoins to end digital currencies’
The end is nigh for digital currencies, Richards believes. He told the audience that there are way too many things that are going against them for them to survive.
As with most critics, he said their use for illicit purposes will be their biggest downfall. To him, Bitcoin is for criminal use first and everything else after. Their anonymity just stamps their purpose for illicit use.
Richards’ views borrow from an outdated narrative that illicit transactions account for the highest volume of Bitcoin transactions. This has been debunked several times by blockchain analytics companies, including Chainalysis. In addition, Bitcoin, and most other digital currencies, aren’t anonymous. Satoshi Nakamoto has talked extensively about why Bitcoin is private, not anonymous.
The RBA executive further believes that CBDCs and stablecoins issued by commercial banks will be the final nail to the coffin for Bitcoin.
“In either case, they [stablecoins and CBDCs] would be denominated in fiat currencies, be safer than existing stablecoins, and would likely have faster, safer and more efficient transaction verification mechanisms than most cryptocurrencies. Accordingly, it is likely that they would be viewed as superior instruments for the settlement of transactions in tokenized assets on distributed ledgers,” he said.
However, local stakeholders were quick to point out the flaw in Richards’ reasoning. John Deane, the CEO of asset manager Trovio, believes that even as a CBDC, fiat currency would still be subject to the same forces that have reduced people’s faith in it.
“People buy bitcoin to move away from the devaluation of fiat currencies by central banks, to a finite resource that acts as both a store of value and ultimate settlement layer,” Deane commented.
Still, Richards believes that these factors, plus the excessive energy use of most digital currencies, will eventually lead to their demise.
“If there were to be global policy action to deal with some particular concerns about the use of cryptocurrencies, plus the arrival of new stablecoins and CBDCs, that could safely meet the needs of a wide range of users, existing cryptocurrencies might then have only niche use cases, at best,” he concluded.
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