The Australian central bank governor favors crypto-technology in the private sector

Australian Governor Phillip Lowe said a private solution “will get better” for cryptocurrency as long as the risk is reduced through regulation.

Lowe commented on a recent G20 financial meeting in Indonesia. Reuters reported on July 17 that officials from other countries discussed the impact of stack coins and decentralized finance (DeFi) on global financial systems.

Recent risks associated with stack coins can largely be attributed to depegging events. In May, Terra USD lost the stable coin UST, which has since changed to the Terra Classic USD (USTC), the link and drove down the value of the entire Terra Classic ecosystem. This caused a cascade effect of billions of dollars which led to the short-term deposition of Tether (USDT) and DEI stablecoin.

Lowe suggested that strong regulations or even government support could help reduce the risk to the public.

“If these tokens are to be used extensively by society, they must be supported by the state or regulated just as we regulate bank deposits.”

While the regulations would come from the government, Lowe noted that the technology would be best if it was developed by the private sector. In his view, private companies are “better than the central bank at innovating” the best features of cryptocurrency.

He added, “it will probably also be very significant costs for the central bank to set up a digital token system.”

The National Association of Federally-Insured Credit Unions shared Lowe’s skepticism about implementing a digital token in central banks due to high costs in a letter to the US Department of Commerce, according to the Cointelegraph on July 8.

However, his view of the cost of digital token systems in central banks has not been repeated by countries currently developing or experimenting with central bank digital currencies (CBDCs), such as China, the EU and the Bahamas.

At the same G20 meeting, Hong Kong Monetary Authority CEO Eddie Yue supported Lowe’s view that stack coins should be scrutinized. He said that reliable stack coins will in turn reduce the risk in DeFi, where stack coins act as the most important transaction currency.

Related: Aussie FPA supports ‘crypto rule book’ and regulation of stock exchanges

Referring to DeFi and stablecoins, Yue said, “the technology and business innovation behind this development is likely to be important for our future financial system.”