Liberal senator drafts cryptocurrency bill to regulate ‘stablecoins’ and China’s digital yuan

by Arthur · September 18, 2022

Cryptocurrency use is growing and the lack of regulation in the sector could threaten Australia’s national security, according to Liberal senator and crypto campaigner Andrew Bragg.

Senator Bragg will introduce a private member’s bill when parliament next sits, including new rules for crypto exchanges, and Chinese banks handling e-yuan in Australia.

“The Chinese government is piloting what they call the digital yuan, which is a digital form of currency, and they’re currently trying it outside of China as well, with the UAE [United Arab Emirates]Hong Kong and Thailand,” he told RN Breakfast host Patricia Karvelas on Monday.

“This currency, if it became widespread in the Pacific, or even in Australia, would give the Chinese state enormous power, economic and strategic power that it does not have today.

“So I think we need to be prepared for that. We need to know more about this digital currency, so the bill establishes reporting requirements in that regard.”

Play video. Duration: 1 minute 53 seconds — Crypto investors have been warned of huge tax bills.

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China far ahead of Australia on digital currencies

China was the first major economy to explore the use of digital currencies in 2014, and is way ahead of its global peers.

It has conducted limited trials with the e-yuan over the past three years.

However, China has yet to roll out the digital currency across its population of 1.4 billion people – seen by critics as a way to increase government control over the payment system.

Last September, China’s government imposed a blanket ban on all cryptocurrency trading.

Unlike bitcoin, ether and other cryptocurrencies (which are “decentralized”, or not controlled by the government), the e-yuan falls under the authority of the People’s Bank of China.

Australia, meanwhile, is nowhere near launching its own digital dollar.

Reserve Bank Governor Philip Lowe has long been skeptical of the idea of a digital currency, saying Australia already had a fast and efficient electronic payment system in place.

But last month the RBA announced it was conducting research into digital currencies as part of a limited “ring-fenced” pilot program – to see how it could actually be used by consumers and businesses in Australia.

Tougher rules for “stablecoins”

There is currently very little regulation in the Australian cryptocurrency industry.

A crypto exchange is only required to follow the general provisions of the Corporations Act, and collect data about its customers (for financial crime regulator AUSTRAC) when they open a trading account.

Last year, Bragg chaired a Senate committee that made 12 recommendations on how to improve cryptocurrency regulation.

They include a new market licensing regime for digital currency exchanges, changes to tax rules around cryptocurrencies to clarify when a capital gain or loss is realised, and the introduction of tax incentives for companies that use renewable energy for crypto mining (a process that leads to the creation of new digital coins).

But following the Coalition’s defeat in May’s federal election, Senator Bragg’s recommendations have not been taken forward by the new Labor government.

His private member’s bill goes further than his initial recommendations by seeking to regulate “stablecoins” (a type of cryptocurrency typically pegged to a real-world value, such as the US dollar), by making it a criminal offense to issue one without a license.

“What we’ve seen in the last six months or so has been the collapse of major stablecoins, including the US stablecoin Terra,” Senator Bragg said.

“The Governor of the Reserve Bank of Australia and Janet Yellen [the US Treasury Secretary] have called for regulation so that if someone wants to issue a stablecoin, they are required to hold reserve capital to meet any risk.”

In May, the value of Terra crashed spectacularly – to the point where it became completely worthless.

Many investors were burned when this particular “stablecoin” was promoted as a “safe” way to earn high returns (up to 19.6 percent) in a low interest rate environment.

However, Terra was not backed by the real world currency, but by its ‘sister coin’ Luna, which also saw its value drop to zero.

“Unnecessary harm” to consumers

“It is very important that we protect consumers from any unnecessary harm,” the senator said.

Australian consumers lost $158 million to investment scams between January and May, according to data from the Australian Competition and Consumer Commission (ACCC).

This was a 314 percent increase compared to the same period last year, and the overwhelming majority of these scams were related to cryptocurrency investments.

Given that the federal Liberal Party is in opposition, there is little chance of Senator Bragg’s private member’s bill being passed.

In August, Treasurer Jim Chalmers said the first step in Labour’s crypto agenda was to prioritize “token mapping” work this year.

Basically, the aim of this exercise is to find out which crypto-assets are already covered by the Financial Services Act – and which are “non-financial products” (which will require their own special legislation).