As published on afr.com, Monday 19 April, 2021.
Major bank leaders are keen for the federal government to develop a regulatory regime for bitcoin that recognises its underlying distributed ledger technology will play a more prominent role in financial services beyond crypto currencies.
Last week’s Coinbase float put bitcoin on the radar of the parliamentary committee overseeing the major banks for the first time and National Australia Bank CEO Ross McEwan responded on Friday by urging policy makers to set out a plan to protect investors who trade digital assets.
“We need to think, as a country, [about] what is crypto, how could it be used, and do you trade it – if it is something that should be traded – safely, and so we make it safe,” Mr McEwan told the House of Representatives economics committee on Friday.
“Those are the issues we need to think about – and quite quickly – because people are making a livelihood out of trading cryptocurrencies.”
The ASX and Australian Securities and Investments Commission have been reluctant to allow exchange-traded funds (EFTs) linked to bitcoin to be listed in Australia, which has forced investors to turn to offshore products or trade the volatile asset directly via exchanges based offshore, with limited investor protections.
But the Senate select committee on financial technology is taking submissions on a digital asset policy for Australia to report by October.
Officials from the Australian Securities and Investments Commission, Reserve Bank of Australia and AUSTRAC will present on Monday to Blockchain Australia’s week-long event exploring the emergence of crypto-assets in the economy.
Like the the other bank CEOs, Mr McEwan said he remained cautious about bitcoin but he expected it would continue to grow in popularity.
“People talk about it being an asset class. I have been around a long time, and wonder what the asset behind the class is,” he said.
But “there is a lot of people investing in this at the moment and trading in it, and if we could find a safe platform to trade … There is a lot of work that needs to be done and the RBA is thinking about it as well.”
Many global central banks are considering whether to create digital versions of their fiat cash in response to the emergence of private digital currencies.
The Reserve Bank is reluctant to develop a digital version of Australian dollar cash notes based on concerns this could encourage bank runs in a crisis.
But the RBA is working on a proof on concept, alongside Commonwealth Bank, to determine whether a digital version of the Australian dollar could help banks and non-banks in wholesale markets in their interaction with the RBA’s exchange settlement accounts.
ANZ CEO Shayne Elliott said the use of digital currency in wholesale markets could support the Reserve Bank efforts at reducing payment costs and bringing them into real time.
“I don’t know, [but] maybe digital currency could have a role in that, and everybody is trying to learn as much as they can,” he told the House committee on Friday.
Mr McEwan said bitcoin raised many questions but the blockchain technology that underpinned it was becoming more mainstream.
“I do see a real usage for blockchain technology and we, as a bank, are investigating the use of that in a number of areas due to the usage of sending data end to end and hold it securely. There is a real path there.”
ANZ’s head of institutional banking, Mark Whelan, also said policy makers should distinguish between bitcoin and “central bank digital currencies” (CBDCs), which he described as “an area we think has significant potential upside”.
“We think the way the market will move is more away from bitcoin to ‘stablecoins’, which is a product that takes away much of the volatility you see in the bitcoin space and [has] some degree of oversight from regulators.” he said.
Stablecoins are a digital currency that is tied to a basket of fiat currencies, or a particular fiat currency, or another asset with price stability. An example is the coin proposed by Facebook, known as Diem, to facilitate internet payments.
Blockchain “has significant potential to help with the security of payments, particularly in the trade area,” Mr Whelan said.
“When you sit back and take a look at some of the losses banks have taken globally over the last couple of years, some of these related to trade fraud and our customers are exposed to that as well. Distributed ledger technology allows the tracking of ownership and transfer of beneficial ownership through the use of that technology.”
He said ANZ was working with the Australian government and Monetary Authority of Singapore on trade applications. ANZ, CBA and Westpac have also set up a private blockchain to manage bank guarantees.