RBNZ 'not proposing a regulatory response' to cryptocurrencies & stablecoins 'at this point'

Personal Finance / news

Reserve Bank says there may be 'real advantages' to harmonising cryptoasset regulation globally

30th Jun 23, 11:48am by Gareth Vaughan

The Reserve Bank says it's not proposing regulation yet, but is increasing its monitoring of stablecoins and cryptoassets (cryptocurrencies), and suggests there could be "real advantages to harmonising cryptoasset regulation" globally.

The comments come as the central bank releases a response to consultation in its ongoing future of money project. It sought feedback on its approach to the opportunities and challenges from new forms of private money such as cryptoassets, including stablecoins.

"The submissions reinforced our view that there are significant risks and opportunities, but also significant uncertainties about how the sector will develop and where the optimal balance will lie. We agree with the view that caution is needed. This is why we are not proposing a regulatory response at this point," the RBNZ says.

"Another reason for taking a cautious approach lies in regulatory developments globally. There is likely to be real advantages to harmonising cryptoasset regulation. As various overseas regimes are implemented, best practice for regulating cryptoassets may become clearer. This will inform our optimal regulatory design and the assessment of any need for alignment."

"More immediately, we intend to strengthen our monitoring capability in a more systemic, robust, way. Currently our data is limited and varies in quality, which limits our ability to assess potential issues and then respond in a timely and effective manner," the Reserve Bank says.

"Monitoring global regulatory developments, particularly in similar jurisdictions and with key global organisations such as the Bank for International Settlements, will be an integral part of the monitoring framework. We need to take a cross-agency approach to monitoring as well as future regulation. The Reserve Bank is already working with other CoFR [Council of Financial Regulators] agencies to identify gaps in data and metrics. Building on this work we propose a staged process to enhance our capability."

The Reserve Bank says issues raised by cryptoassets and other innovations don't fall neatly within the existing agency boundaries.

"Issues such as consumer and investor protection, or perceived regulatory barriers to entry, can have an impact on the collective vision we have for a reliable and efficient money and payment system that better meet New Zealanders’ evolving needs. These issues matter also because how we respond now could shape how they evolve from their current use, for example, to become new forms of money," the Reserve Bank says.

Friday's update from the Reserve Bank comes after it said in December it was establishing a "monitoring framework" to watch and assess developments in new forms of 'private money', including cryptoassets. The Reserve Bank is doing extensive work as part of its Future of Money programme. This includes work on the potential development of a central bank digital currency (CBDC), which is still continuing.

A CBDC is the digital form of a country’s fiat currency. That means a Reserve Bank issued CBDC, like the physical NZ dollar, would be a liability of the Reserve Bank, backed essentially by trust in the Government and its institutions. By law the Reserve Bank is the sole supplier of NZ banknotes and coins, with this being a key raison d'être for the central bank.

Parliament's Finance and Expenditure Select Committee undertook an inquiry into cryptocurrencies during 2021. It pledged to report back to the House but is yet to do so.

In its submission to the Select Committee, the Financial Markets Authority (FMA), which regulates NZ’s financial markets, pointed out it doesn't regulate cryptocurrencies. However, some cryptocurrency activities can fall within the FMA's regulatory remit.

The RBNZ's definitions of cryptoassets and stablecoins are below.

What are cryptoassets?

A cryptoasset is a digital token that relies on cryptographic methods and non-traditional payment infrastructure to be transacted and stored.

What are stablecoins?

A stablecoin is a type of cryptoasset that aims to stabilise its value relative to other conventional assets, including central bank money.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

37 Comments

by JimboJones | 30th Jun 23, 12:14pm 1688084056

I'm surprised it is even legal to invent and use an unregulated currency Can you pay employees in that currency and pay tax in that currency? Can you buy things in that currency and pay GST in that currency?

by lowercase capitalist | 30th Jun 23, 12:33pm 1688085208

Why would it be illegal? It's not like it's without precedent - airline miles have been a thing about as long as air travel. Company scrip goes back hundreds of years.

by pacifica | 1st Jul 23, 9:00am 1688158811

Transferring airline miles points back into cash is significantly hampered if not made more impossible as you have already put more money in to pay to get airline miles points above the cost of travel so that any reward returned is already less money than that you have already paid. The points are non transferable to cash and never will be able to be easily traded between people. If they simply offered more competitive pricing with less profit added then it would be far better for consumers then getting some cheap tat or discount they would already offer or indeed another flight you would have had the money for if you did not pay higher costs for earlier tickets with airline points.

by pacifica | 1st Jul 23, 9:13am 1688159607

Airline & reward points schemes and company scrip are not a currency, they do not have any of the key functions that are required for them to even come close to being considered a currency. Pretending they are is fraudulent and misleading on purpose. Protip company scrip is illegal in civilized countries with fair pay and labour laws for a reason. Perhaps you should go look that up.

by JRSNZ | 30th Jun 23, 1:01pm 1688086900

Digital assets are not currencies. Bitcoin is a commodity money. The rest are unregistered securities.

You can't stop someone creating a digital asset because it is simply mathematics and code.

by J.C. | 30th Jun 23, 2:15pm 1688091326

Digital assets are not currencies. Bitcoin is a commodity money. The rest are unregistered securities.

You can't stop someone creating a digital asset because it is simply mathematics and code.

Actually, while I understand what you are saying, this is not correct.

As to whether or not BTC and crypto are commodities and / or securities is contestable by each jurisdiction ( for ex, in the U.S).

ETH and XRP are not securities in Japan. And BTC is not a commodity.

by alphabeatrium | 30th Jun 23, 1:12pm 1688087554

You can't pay tax in it, no. That's why we have a fiat currency, and what gives it its value, when you think about it. The only reason a small piece of brass or a polymer rectangle is treated as money is because we all have to pay tax in that currency (and if you don't, you would ultimately be punished).

But sure you can be paid in it if you want to be, who's to stop you being paid in any commodity or currency? I've worked for USD for international clients, and I've paid friends and family in beer and pizza. Note, an employee is obviously a different kettle of fish as opposed to a contractor or other less formalised arrangement, but the basic principle stands.

by J.C. | 30th Jun 23, 2:27pm 1688092074

You can't pay tax in it, no

Says who? Depends on your jurisdiction. And there should be no reason why I should not be able to pay tax in rat poison instead of Kiwi pesos.

by alphabeatrium | 30th Jun 23, 2:22pm 1688091736

Whether you can pay someone in some currency or commodity is up the recipient, not you.

by J.C. | 30th Jun 23, 2:30pm 1688092224

Whether you can pay someone in some currency or commodity is up the recipient, not you.

Depends. If BTC is not legal tender, then there is no obligation to accept it. That doesn't mean it is 'illegal' to accept it. Depends on the jurisdiction. Case in point: Japan.

In some jurisdictions, it is possible to pay taxes in Bitcoin.

by the Joneses | 30th Jun 23, 3:17pm 1688095039

"In some jurisdictions, it is possible to pay taxes in Bitcoin."

Do you just mean El Salvador and the Central African Republic where Bitcoin is legal tender?

by J.C. | 30th Jun 23, 10:16pm 1688120172

For example, Zug and Zermatt municipalities in Switzerland allow citizens and companies to pay up to 100,000 Swiss francs (around USD111,300) of their taxes in bitcoin.

by enclavecryptologist | 30th Jun 23, 12:58pm 1688086693

Here's a proposal for increasing financial stability using Ethereum:

If each of the banks issued their own version of a stablecoin (i.e. anzNZD, bnzNZD, asbNZD, and so forth), those stablecoins could be indexed on register.app (The Reserve Protocol). The end result is an NZD that isn't wiped out entirely if any one bank fails.

Furthermore, if banks created a yield generating version of this stablecoin, or the market naturally produces a tokenised version of this yield generating dollar from borrowing and lending, the same diversified NZD could be created with yield going to insurers of that index. Basically producing the first insured form of NZD deposit insurance that isn't dependent on government response/a bailout via debt or debasement.

Just some food for thought, since I know many people preach writing off the industry while not actually involving themselves in its weeds.

by J.C. | 30th Jun 23, 2:21pm 1688091669

Are the banks allowed to lend these stablecoins into existence as they do with fiat currency now? If so, what benefit does that add over the fiat system?

by enclavecryptologist | 30th Jun 23, 3:09pm 1688094571

I said in my original comment. Within the current system most people hold their funds in one bank. If that bank fails, customer funds are used to bail-in that bank (no deposit insurance).

If each bank issued its own stablecoin, you could then create an index/basket version of the dollar (using open-source protocols within DeFi) that isn't entirely dependent on any one issuer.

For example, rather than having all your dollars with ANZ, you could hold a dollar that was 1/5 ANZ, 1/5 BNZ, 1/5 ASB, 1/5 Westpac, 1/5 Kiwibank. The benefit is that it is a less risky expression of the dollar for end users.

There is also the programmable insurance part of the equation too, where if there is a tokenised dollar that generates a return, this return could be used to pay insurers. So that, in the event of any one bank collapsing, insurers step in to cover the hole and make up the difference for end users. Again, a more robust version of a digital dollar than we're currently used to, that's capable of self-healing overnight where our institutions would take considerable time to respond.

The longer-term, broader implication of such a protocol is you could even compose a novel currency that tracks and is backed by tokenised assets of the CPI, so people have access to an asset-backed currency that doesn't devalue over time.

by J.C. | 30th Jun 23, 3:20pm 1688095257

Sorry? What does this "tokenised assets of the CPI" mean? The CPI is a measure of the price level of goods and services.

The CPI has a relationship with the money supply. For a digital representation of fiat to maintain purchasing power, it needs properties. You cannot 'decree' that the CPI has increased by 3%, therefore we adjust the bank token so purchasing power increases accordingly.

by the Joneses | 1st Jul 23, 7:30am 1688153418

"You cannot 'decree' that the CPI has increased by 3%, therefore we adjust the bank token so purchasing power increases accordingly."

Isn't that exactly what Bitcoin sets out to do by design? Ramping up the cost of new coins, to try and make all the existing coins hoarded already worth more?

by J.C. | 1st Jul 23, 1:56pm 1688176613

Isn't that exactly what Bitcoin sets out to do by design? Ramping up the cost of new coins, to try and make all the existing coins hoarded already worth more?

The costs associated with mining are only partly how BTC derives its value. It's not the primary driver.

by the Joneses | 1st Jul 23, 9:58pm 1688205484

You never give much away do you?

by enclavecryptologist | 1st Jul 23, 11:03am 1688166219

Sure, bad wording. It'd be more like general purchasing power.

I meant that as more and more Real World Assets are brought on chain, you can compose multi-asset currencies (that are redeemable for their underlying components). These would retain purchasing power better than a fiat non-asset backed currency, and be of particular use to people around the world who don't own assets.

by J.C. | 1st Jul 23, 1:58pm 1688176730

I meant that as more and more Real World Assets are brought on chain, you can compose multi-asset currencies (that are redeemable for their underlying components).

You mean like the tokenization of assets such as gold or other commodities? Coincidentally, two gold-backed tokens (incl Perth Mint Gold Token) are being discontinued. I think it's lack of demand.

by enclavecryptologist | 2nd Jul 23, 3:09pm 1688267382

Precisely, except imagine a higher order token that's 1/4 tokenised gold, 1/4 stablecoins, 1/4 tokenised bonds and 1/4 tokenised stocks. It's like the synthesis of one's investment portfolio with their Medium of Exchange. Peter Thiel talked about this concept in the early 2000s.

As you've kind of eluded too though, I think much of the problem IS the lack of regulatory clarity, this assumption that all crypto-assets are memetic or ponzinomic in nature, when really these properties are only relevant to the security model of the base network. If we could get to a place where becoming an onchain issuer for an asset or assets was an encouraged venture, there're all kinds of novel financial products we can come up with here. The space would also mature and begin to look like a more transparent and stabler version of the current system.

by Due Diligence | 30th Jun 23, 1:09pm 1688087357

A supportive regulatory framework for Bitcoin, as a commodity, in NZ would be great for the country. I agree that a consistent approach globally would be ideal, and I see no reason why we can’t take the initiative to be a leader in this space.

by J.C. | 30th Jun 23, 2:36pm 1688092605

A supportive regulatory framework for Bitcoin, as a commodity, in NZ would be great for the country. I agree that a consistent approach globally would be ideal, and I see no reason why we can’t take the initiative to be a leader in this space.

One good reason is that the govt and RBNZ are miles behind the 8 ball.

by Small Kev | 30th Jun 23, 2:15pm 1688091339

Increasing frozen bank accounts due to crypto transactions…

by J.C. | 30th Jun 23, 2:35pm 1688092530

The RBNZ and govt are in snooze mode. And here's an illustration why.

This month Japan’s National Tax Agency has updated its corporate tax regulations, bringing clarity to the treatment of cryptocurrencies. Under the new rules, unrealized gains from crypto assets issued by companies will no longer be subject to the current 30% corporate tax.

This is great for the Web3 industry but also enables other companies to hold cryptocurrencies on their balance sheets without onerous tax burdens.

by HBI024 | 30th Jun 23, 3:14pm 1688094884

Interesting to see this after the UK has just today passed an Act to regulate crypto-assets. Following up on a manual for the usage and taxation of crypto-assets released last month.

https://www.gov.uk/government/news/rocket-boost-for-uk-economy-as-finan…

by rolande | 30th Jun 23, 9:11pm 1688116293

The e-CNY is already here and other countries will follow soon, including maybe NZ

https://en.m.wikipedia.org/wiki/Digital_renminbi

by pacifica | 1st Jul 23, 8:21am 1688156496

Except over 90% of crypto is fraud and scams. The largest exchanges have been proven to be poorly run fraud schemes that literally take investors money and launder it. There is no deposit guarantee, no trusts holding investor funds, no refunds, no possible police interventions possible in cases of theft. The people threatened the most by cryptocurrencies are the consumers of cryptocurrencies. Just look at what happened to NZ largest exchange and the well known ponzis that dominate the market in NZ. If anything you might say the RBNZ is thumbing their nose at crypto by saying it will never amount to much to require the barest minimum in consumer & investor protections and exchange regulations. Any crypto fan would want those things for it to become more legitimate and mainstream.

Having been a software engineer involved with crypto introduction in NZ and with family now still working in the business it is very hard to justify its use now for anything other than speculation by trading within the going pump and dump schemes and market manipulation. It does not take a genius to realize when someone like Eion advertises that Telsa will buy and use bitcoin it is a good time to sell some and so later when he reveals the pipe dream was literally from his pipe use and his desire to financially benefit from the gullible you will have made a tidy sum and can continue speculating and trading. Likewise the NFT market has severe faults lacking basic consumer protections which makes the market rife for fraud and scams. Unfortunately NZ pays our art and culture grants to "creatives" to literally set up NFT and crypto "platforms" (aka cheap fraudulent websites) that do nothing more than take money and assets from actual creatives and then leaves them high and dry. Sadly the NZ government is equally susceptible to crypto fraud schemes so long as you can put a cultural and artistic spin on their operation.

by Baywatch | 1st Jul 23, 8:19am 1688156377

NZ largest exchange...do you mean Easy Crypto?...Going very well I here with thousands of happy customers

by Pa1nter | 1st Jul 23, 8:25am 1688156756

Only noobs and normies use a service like that.

What you have to do, is write out the code for your crypto using invisible ink on a piece of paper. Then bury it 20 meters underground in a lock box that's boobytrapped using a claymore mine. 98% secure.

by pacifica | 1st Jul 23, 8:49am 1688158196

Sadly it is true physical storage in multipart keys is safer than any exchange. However there is a difficulty in accessing funds should disaster or medical accident occur (which also would affect any digital storage too), e.g. where there is no avenue to access funds if you suffer a brain injury after a sports accident, or a landslip, or a fire at the exchange server data center, or most common a simple power outage which only happens over hundreds of times a year. The risk is significantly affected by storage location and physical or digital access. There is no legal avenue to access funds without the keys and if the funds are transferred to a thief then they are gone. Which is why exchanges are more susceptible because they involve more people with less secure sites and more attack risk. Hence the need to involve multiple locations and secure backups that cannot be decoded by others (in your storage location) but should you be significantly impaired then having family or someone you trust able to aid you in accessing your funds again (but vital no family member or trusted person can decode the key either by themselves as you can never fully trust them either).

by Pa1nter | 1st Jul 23, 8:58am 1688158716

That's right, it's a less user friendly version of money.

Yet apparently the masses are creaming themselves to get hold of it.

by pacifica | 1st Jul 23, 9:31am 1688160686

Unfortunately some people, especially those with less understanding of the technology are easily fooled by selling points of guaranteed returns... Why more of the scammer market advertise it these days as most people have no legal avenue to recover funds unless significant worldwide investigations are undertaken. With NZ police response to theft or financial scams it is no surprise financial crimes in cryptocurrency/ digital assets are the back edge of the back seat. Less people are involved in actual cyptocurrency trading now than before but it is more because other investment options are easier to access, more secure and the cost of living has risen so even those who would be fooled by guaranteed returns statements just don't have the money to "invest". Sadly that means they also don't have enough money for good food, medical costs, basic transport, essential bills, insurance. Meanwhile the technical followers of the technology enter into the market knowing the severe faults but are willing to take on high risk, often with our propensity for optimism bias, survivorship bias and gambler's fallacy. More regulation and protections would be great for the businesses and tech as the severe lack only increases the harm and reduces the availability of the technology for different use cases.

by J.C. | 1st Jul 23, 2:01pm 1688176903

That's such a normie thing to say. There are no "codes" for digital assets. You might be referring to recovery phrases for cold and hot storage.

by pacifica | 1st Jul 23, 8:30am 1688157051

Yet still much smaller than the NZ largest exchange which went bust after a severe theft of funds from global customers. It is so easy to compare via the customer numbers, active trades, or value of funds held so if you are this easy to fool with cheap marketing perhaps you should stick to services with easy in the name. Maybe you can save some of that fanboyism to actually push for basic consumer and investor protections. You know those to protect consumers and investors (not the banks or your conspiracy theory boogeyman of the day). Unfortunately it takes a severe lack of ethics to continue to advance trading in the unregulated market manipulated market. It is why I pulled out because I still have ethics to not involve myself in a business model expressly designed to manipulate vulnerable people. After all a business model is separate to the technology used and the technology while having some benefits had far more cons in later stages especially when combined with exchanges lack of morals.

by Escander | 6th Jul 23, 3:47pm 1688615239

Totally feel for those who lost when just holding on a corruptly run exchange, but 'people' buying hoping to make money are gambling and all investments are a gamble, there have been plenty of issues with regulated finance businesses, pump and dumps still happen. That is more the nature of people than the technology itself.

Personally, I don't lump Bitcoin with the 'other' crypto as it's decentralised meaning no one person controls it, it has a fixed maximum supply so additional cannot be printed diluting its value and uses a publicly viewable ledger providing surety of each transaction. I’d like to see where this technology goes.