The RBA’s head of payment policy, Tony Richards, cautioned cryptocurrency investors against becoming overinvested in the current boom that he considers to be a fad.
RBA head gives crypto the hairdryer treatment
Cryptocurrencies and central banks are not exactly friends, as switched-on crypto investors are well aware of. However, rarely does a central bank official come out against crypto with such bearish statements as RBA’s head of payments policy Tony Richards did last week.
In a speech at the Australian Corporate Treasury Association, he gave crypto a proper dressing-down, calling it a fad and warning about the excessive hype around crypto. According to Dr Richards, crypto continues to be the “payment method of choice for ransoms,” and central banks could target crypto for facilitating the cash economy, financial crimes and illegal activities, and excessive energy consumption. At that point the current “fervour” for crypto could unwind, and surging prices may reverse.
CBDCs are a superior means of payment, Richards says
Richards also sketched out a scenario in which crypto investors could start turning their backs on private digital assets: suppose central banks issued their own digital currencies. In that case, households might switch to using them instead of private stablecoins, which would make them “less influenced by fads and a fear of missing out,” and they would pay more attention to the warnings of securities regulators and consumer protection agencies.
Richards continued that the focus would shift from the conveniences of the near anonymity of crypto to its downsides like facilitating financial crime and the black economy. He expects central banks around the globe to start responding more assertively to the rise of Bitcoin and other coins, as these encroach on the banks’ monetary authority.
Richards also recycled a well-known talking point of crypto critics: its electricity consumption. “The very high use of energy involved in mining proof-of-work cryptocurrencies could attract greater attention from governments and policymakers.” Even though crypto proponents have proven this argument to be misconstrued and taken out of context, it is still popular among critics.
RBA sees future for regulated decentralised finance
DeFi is a subsector of crypto that its proponents see as an emerging niche that could deliver financial services to the unbanked. Its critics, such as Dr. Richards, denounce it as a playground for wealthy investors to use insider information and extract money from unsuspecting retail investors.
Richards addressed the future of DeFi as well and said that the RBA does indeed recognise its use cases but considers cryptocurrencies unnecessary for the use of decentralised finance. Instead, he sees a future with a strong regulatory framework for stablecoins that could lead to the issuance of stablecoins by central banks. In that case, users would prefer the convenience and security of government-backed stablecoins and prefer regulated decentralised finance over the current version. Richards also agreed that asset tokenisation was of interest for central banks and that providing a riskless and interoperable form of digital money could stimulate competition in the private sector.
Asked about his own use of crypto, Richards noted that he bought some bitcoin in 2014 and some ether in 2018, although his holdings continue to be “still pretty small.”