The Reserve Bank of Australia has published a scathing opinion on the digital “meme coins” flooding the local market, arguing that if people and financial institutions are going to use cryptocurrencies, they may as well use technology backed by local regulation.
In the minutes of November’s monetary policy meeting, published Tuesday, the Reserve Bank of Australia (RBA) noted the rapid uptake of cryptocurrencies in Australia comes with considerable risks.
Cryptocurrencies have “numerous shortcomings as stores of value or means of payment,” the central bank said, referring to the drastic price fluctuations in popular digital assets like Bitcoin or Ethereum.
These risks are most present in “meme coins” — gimmicky blockchain assets with little intrinsic value, which are nonetheless adopted by speculators in the hopes of massive price growth.
RBA members noted the “considerable risks associated with cryptocurrencies and the prospect that the recent boom, which was most obvious in the ‘meme coins’, contained a significant speculative component,” the central bank said.
Australia’s financial regulators have focused on cryptocurrencies over the past year, given their widespread uptake, potential to cause taxable events, and the harsh fact that many investors are losing out on dodgy projects.
“Securities regulators in many jurisdictions had warned that investors in cryptocurrencies could experience large losses,” the RBA said.
But the central bank did not reference “meme coins” purely to warn Australians of their instability.
Instead, the reserve bank criticised unregulated cryptocurrencies to vouch for their alternatives: stablecoins, which are digital assets with values pegged to fiat currencies, and central bank digital currencies (CBDCs), which are cryptocurrencies issued directly by central banks themselves.
While “meme coins” have been met with scorn by the RBA, the central bank accepts that blockchain technology and decentralised finance “could significantly change the financial sector.”
Beyond the dicey “meme coins” ensnaring vulnerable investors, Australian regulators and lawmakers are interested in the ways blockchain transactions could speed up and simplify the digital payment system.
In August, RBA head of payments Tony Richards told a parliamentary inquiry that the central bank is experimenting with a CBDC — effectively a digital version of the Australian dollar — which would theoretically allow it to settle transactions on the blockchain.
And in September, the RBA partnered with the central banks of Singapore, Malaysia, and South Africa, to develop a prototype platform which could facilitate the transfer of CBDCs between each nation.
“Enhancing cross-border payments has become a priority for the international regulatory community and something that we are very focused on in our domestic policy work,” RBA assistant governor Michele Bullock said at the time.
Given the seeming inevitability of “new decentralised finance” breaching the mainstream payments sphere, RBA members discussed the “likelihood” those systems using private stablecoins or CBDCs.
Stablecoins “should be subject to regulation that ensured they were safe for users and promoted financial stability,” the RBA minutes said.
RBA members also “expressed their support for the work being done by the Bank in relation to CBDCs.”
The minutes arrive in the wake of a massive Senate committee report delivered last month, which called for Australian lawmakers to clear the way for blockchain development in a multi-trillion dollar industry.