NZ Central Bank Governor Warns About Stablecoins

Adrian Orr, Governor of the Reserve Bank of New Zealand (RBNZ), has raised major concerns over cryptocurrencies, especially stablecoins, during a parliamentary finance committee meeting on Feb. 12. Orr argued that stablecoins, despite their name, lack stability and are not a viable alternative to traditional fiat money. He criticized these tokens as “the largest misnomers” and “oxymorons.”

He stated:

“There is no substitute for fiat currencies issued by central banks and backed by government authority. Bitcoin and other cryptocurrencies do not fulfill the roles of money and introduce risks due to their volatility.” 

Stablecoins are crypto tokens designed to maintain a consistent value, often pegged to real-world assets such as the US dollar. However, Orr emphasized that the stability of stablecoins hinges solely on the financial health of the entity backing them, highlighting the reliance on the issuer’s balance sheet. He stressed that fiat currencies, like the New Zealand dollar, backed by the government, provide essential stability and inflation control.

“They are speculative coins, not currency, and not central bank cash,” Orr emphasized, advocating for increased regulatory oversight on stablecoins. He cited the UK as an example of a jurisdiction taking a strict approach to stablecoin regulation.

Moreover, the governor of New Zealand’s central bank said stablecoins might face problems in the traditional financial system, and some worry they could impact real-world markets in response. He pointed to the recent FTX bankruptcy as an example of the fragility of the crypto sector. Orr added that cryptocurrencies raise concerns due to the gap between their “purported benefits and actual operations.”

Bitcoin’s Limitations as Currency

In a recent discussion, Orr questioned the idea of Bitcoin’s utility as a mainstream currency. He argued that BTC fails to meet the fundamental functions of a currency, such as serving as a means of exchange, a store of value, or a unit of account. Although Bitcoin may have alternative uses, it cannot replace or even complement traditional central bank currency. 

This warning comes amid ongoing discussions in New Zealand regarding crypto regulation. In August last year, a parliamentary report advised against rushing into crypto regulation, urging for “coherent and consistent guidance on the treatment of digital assets under current law.” Furthermore, a July 2023 report highlighted that Zealand is actively exploring options for “high-level design options for the central bank digital currency (CBDC), and their costs and benefits.”