New Zealand Central Bank Governor Raises Concerns About Stablecoins
New Zealand’s central bank governor, Adrian Orr, expressed his worries about the stability of cryptocurrencies, particularly stablecoins, during a parliamentary committee meeting. He criticized these tokens as “misnomers” and “oxymorons,” stating that they are vulnerable to traditional financial turmoil and have the potential to disrupt real-world markets.
Stablecoins Depend on Issuing Entity’s Financial Strength
Orr highlighted that stablecoins are designed to maintain a consistent value, usually pegged to real-world assets like the US dollar. However, their stability is dependent on the financial strength of the entity issuing them. This raises doubts about their reliability.
Crypto Cannot Replace Fiat
Orr emphasized that cryptocurrencies like Bitcoin do not fulfill the fundamental roles of money, such as serving as a medium of exchange, a store of value, and a unit of account. This echoes concerns among central banks globally who question the potential threat of independent digital currencies to the traditional financial system.
Fiat Currencies Provide Stability and Inflation Control
The governor stressed that established fiat currencies, backed by government and central bank authority, offer essential stability and inflation control unlike most cryptocurrencies. While acknowledging the innovative potential of blockchain technology, he urged caution in its application in financial systems.
Central Banks Working to Understand Risks and Opportunities
Central banks worldwide are actively trying to comprehend and address the potential risks and opportunities presented by digital assets like cryptocurrencies. Many other central banks have also issued warnings against these digital currencies. The governor of the Reserve Bank of India previously cautioned that cryptocurrencies pose a higher threat to developing economies.
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