26 September 2023

Buck stopper: Why the Australian dollar is likely to keep Bitcoin at bay

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Stuart Condie* says the Reserve Bank believes digital currencies are unlikely to be adopted widely in Australia because we have a credible currency in the form of the Aussie dollar.

The stability of the Aussie dollar means Bitcoin and other digital currencies are unlikely to be widely adopted Down Under, a senior Reserve Bank of Australia (RBA) official says.

RBA Head of Payments Policy, Dr Tony Richards, who has owned “a small amount of Bitcoin” since 2014, says digital currencies outside the control of traditional institutions could have practical applications — but probably not in Australia.

Local usage is currently so limited that the RBA does not see it having any impact on monetary policy or the stability of the financial system, Dr Richards said last week.

“When a country doesn’t have a credible currency, then people might look for other ones,” Dr Richards told an Australian Business Economists event in Sydney.

“Whether those are cryptocurrencies or something like the US dollar is another issue, but we in Australia have a perfectly credible currency called the Australian dollar; we’ve had low and stable inflation for at least 25 years; and the likelihood that we’d have significant adoption of an alternative currency seems to be pretty low.”

The volatile price of Bitcoin — a digital asset not backed by any government or physical unit — is also reason to doubt its worth as a store of value in a country that has a safe and stable banking system, Dr Richards said.

The price of bitcoin fell from about US$1,000 to US$250 in 2014, the year in which Dr Richards bought it.

It was worth about US$6,250 last week, but that’s down nearly 70 per cent from its all-time high of nearly US$20,000 in December.

“There is also a lot more risk in bitcoin intermediaries than there is in the supervised banks and financial institutions in which households can hold their Australian dollars,” Dr Richards said.

While Sweden’s central bank is mulling the merits of issuing its own digital currency, Dr Richards said the RBA is not yet actively looking at an e-dollar to operate alongside the traditional dollar.

Similarly, Reserve Bank of New Zealand Deputy Governor, Geoff Bascand said last week it was too early to say whether a central digital currency would bring benefits.

Nonetheless, the RBA is keen to speak with experts in the blockchain technology that underpins bitcoin to see what applications it could have.

The blockchain is an immutable record of transactions distributed across a network, rather than located at a single point that could be vulnerable to fraud, damage or loss.

“Even if one is quite sceptical of whether bitcoin will have a significant role in the economy in the future, I think it is hard to avoid some admiration for its design,” Dr Richards said.

* Stuart Condie is AAP Deputy Finance Editor in Sydney. He tweets at @StuartLCondie.

This article first appeared at thenewdaily.com.au.

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