The Concerns Surrounding Stablecoins
The governor of the New Zealand central bank, Adrian Orr, has expressed significant concerns about digital assets, specifically stablecoins. He emphasized that stablecoins cannot be a substitute for real fiat money and labeled them as “the biggest misnomers” and “oxymorons.” Orr raised these concerns during a parliamentary committee session, highlighting the inherent risks associated with stablecoins.
Orr clarified that stablecoins, despite their name, do not always maintain a stable value. Their stability is entirely dependent on the financial health of the entity backing them, which means they rely on the issuer’s balance sheet. While stablecoins typically have substantial reserves to uphold their value, they remain vulnerable to disruptions in the traditional financial system.
Top central banks have also expressed worries about stablecoins potentially introducing instability into real-world markets during economic challenges. Additionally, Orr warned that unmonitored stablecoins could undermine the global financial system by not delivering what they advertise.
The Limitations of Bitcoin as a Currency
In addition to his concerns about stablecoins, Adrian Orr also questioned Bitcoin’s suitability as a mainstream currency. He argued that Bitcoin fails to fulfill the essential functions of a currency: serving as a reliable means of exchange, a stable store of value, and a unit of account.
Despite its popularity in certain circles, Orr emphasized that Bitcoin lacks the necessary attributes to effectively function as a currency. While it may have alternative purposes, it cannot replace or complement traditional central bank money.
Orr highlighted the crucial role of fiat currencies like the New Zealand dollar, emphasizing their credibility due to legislative authority and oversight from reputable institutions like independent central banks. He stressed the importance of maintaining low and stable inflation, which is typically entrusted to central banks to ensure the stability and reliability of fiat currencies.
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