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Highlights
- The risks attached to digital currency have made the potential decision tricky, leaving little room for error.
- The RBA has also recognised the huge potential of cryptocurrencies and intends to launch its digital currency.
- The government will be licensing cryptocurrency providers to assure the customers that their investments do not go for a toss.
At a time when the Reserve Bank of Australia is contemplating its digital currency, regulators seem to be on the fence regarding the overall benefit of this currency. The risks connected to the digital currency space have made the potential decision tricky, leaving little room for error. Additionally, the prevalence of digital currencies has only magnified in Australia, with the previous year being a stellar example of the growing popularity of cryptocurrencies in the country. In this crypto boom, regulating the digital payment and currency space has become more important than ever for the Australian authorities.
As per a report based on government data, over 55 million cashless transactions occur every day in Australia. This roughly translates into AU$650 billion worth of payments. Additionally, over 800,000 Australians have invested their money in digital currencies, as per Treasurer Josh Frydenberg. Thus, the RBA has also recognised the huge potential within this space and is looking to intervene.
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Will electronic dollar destabilise markets?
A huge risk associated with digital currency adoption is that it would overtake the existing tangible currency owned by consumers in the form of deposits. Even a seamless transition to digital forms of payment is unlikely to make up for the loss of savings in bank deposits.
The digital currency, which is expected to be issued by the RBA, would be held with the central bank with accounts exclusively available with the bank. Consecutively, dollar deposits held in commercial banks would be forced to face competition with these digital deposits. Ultimately, experts fear that commercial banks could see waning deposits, which could cause severe strain on the entire financial ecosystem.
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Could a regulatory crackdown solve the problem?
The idea of regulatory authorities is to provide a framework that protects the interests of investors while taking the industry a step higher. With the added supervision of authorities like APRA over digital payments, the RBA might be able to provide an industry free of loopholes, holding actual legitimate value. With this, the government is seeking to broaden the horizon for regulatory action.
Meanwhile, for cryptocurrencies and other evolving asset classes, the government will be licensing the providers to assure the customers that their investments do not go for a toss. This is likely to be achieved with a central bank digital currency in the pipeline.
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Some pundits suggest that the central bank digital currency is nothing more than a fad, and it would be over as soon as the digital currency wave dies out. However, authorities have time and again vouched for these new digital changes, which they claim would be safe for investors. Despite the RBA’s best efforts, it may happen that these central bank digital currencies become consumers’ go-to place for deposits, making commercial bank deposits less desirable.
