The Governor of the Reserve Bank of New Zealand (RBNZ), Adrian Orr, has sent shockwaves through the crypto community with his strong condemnation of stablecoins, raising crucial questions about their stability and role in the financial landscape.
Speaking before a parliamentary finance committee, Orr didn’t mince words. He labeled stablecoins “the biggest misnomers” and “oxymorons,” arguing that they are neither as stable nor reliable as their name suggests.
He expressed “critical concern” about their potential risks, emphasizing that they fall short of fulfilling the key functions of traditional currencies – namely, serving as a reliable medium of exchange, a stable store of value, and a unit of account.
Orr’s skepticism stems from the inherent vulnerabilities of stablecoins. Unlike fiat currencies backed by central banks, stablecoins often rely on private reserves of assets like fiat currencies or even other cryptocurrencies.
This introduces uncertainty, as the stability of the stablecoin hinges on the value and management of these underlying assets.
Also, the lack of robust regulatory frameworks surrounding stablecoins leaves them susceptible to manipulation and fraud, further amplifying concerns about their reliability.
Some stablecoins have also faced scrutiny and controversy over their reserves and redemption mechanisms.
For instance, TrueUSD, a stablecoin backed by US dollars, was knocked off its peg and traded below $1 in January 2024, due to concerns about its ability to redeem the issued tokens for fiat currency.
Similarly, USDC, another dollar-backed stablecoin, fell to around 95 cents on the dollar in 2023, when its issuer, Circle, announced that it had significant reserves stuck at the failed Silicon Valley Bank.
Orr’s warning against stablecoins reflects the skepticism and caution many central bankers have expressed towards the web3 phenomenon.
However, some central banks are also exploring the potential of issuing their digital currencies, which could offer some of the benefits of stablecoins, such as efficiency, convenience, and innovation, while maintaining the trust and authority of the central bank.
What do you think of Orr’s warning against stablecoins?
