The government will reform legislation around cryptocurrencies with a focus on exchange licensing, custody and deposit-taking regime, and fixing the problem of crypto businesses being de-banked, the Treasurer Josh Frydenberg announced on Wednesday – but there’s a catch.
Frydenberg’s cryptocurrency reform timeline goes as far as “consultation” and “advice” on those major issues to be received, completed, and finalised “by mid-2022”.
An election is due by the end of May, well-before the self-imposed consultation and advice deadline has been reached, which make the reforms something of an election promise.
That might explain Frydenberg’s media blitz on Wednesday as he hit many of the major morning syndicated TV and radio programs to talk about taking cryptocurrency “out of the shadows” and describing to audiences around the country precisely how crypto works.
“It uses digital ledger technology, which is really just a record of transactions,” Frydenberg said.
“And that’s what a blockchain is. It’s very complex. A lot of people can’t get their heads around it.”
According to CoinMarketCap, the total value of these shadowy global cryptocurrencies is around $3.3 trillion.
In other jurisdictions, work on regulating and understanding cryptocurrency has come much further than in Australia, and there have been markedly different approaches to how the financial instruments are treated.
El Salvador, a nation of nearly 7 million people, this year began accepting Bitcoin as legal tender and is regularly buying up large amounts of the cryptocurrency when the price tanks.
And China, which has been actively trialing a digital yuan, completely banned cryptocurrencies after years of “disrupting economic and financial order, breeding money laundering, illegal fund-raising, fraud, pyramid schemes and other illegal and criminal activities” the Chinese Central Bank said in September.
In that same month, the European Commission proposed sweeping new laws for crypto assets that looks to prevent market abuse, closely regulates the issuing of crypto-assets, as well as building consumer-protection obligations for exchanges.
Don’t rush to catch up
Australia’s regulatory stance may be lagging, but it has picked up pace recently following the Senate Committee on Australia as a Technology and Financial Centre’s final report which made 12 recommendations to the government.
Those recommendations included that a market licensing regime be set up for exchanges – something Frydenberg signalled the government would pursue.
Byron Goldberg, Australian Country Manager of crypto exchange Luno, told Information Age the local industry has welcomed the swift turnaround from senate recommendations to government response.
If anything, he is wary about the government moving quickly in the wrong direction, especially given the earliest report about Frydenberg’s reform intentions suggested the government will force exchanges to hold assets belonging to Australians on-shore, a change that would likely be part of the proposed custodial licensing regime.
“The hint of local custodianship being a considered requirement shows there may be a little too much haste,” Goldberg told Information Age.
“Firstly, having geographically separated private keys and signatories is up there with one of the safest ways to store crypto private keys.
“Secondly, an industry focused on security picks it's partners based on who offers the best and safest technology. If the best version of something doesn't exist here, I don't believe it's in anyone’s interest to be forced to use a local provider.”
Central bank digital currency
This week also saw Reserve Bank of Australia (RBA) finalise a report into its ongoing research about issuing a central bank digital currency (CBDC).
The RBA said it will keep looking into how a CBDC might fit into the Australian context with RBA Assistant Governor Michele Bullock saying the recent research “demonstrated the potential for a wholesale CBDC and asset tokenisation to improve efficiency, risk management and innovation in wholesale financial market transactions”.
Exactly what an Australian CBDC would look like remains to be seen, but Dr Anton Didenko, a Senior Lecturer at the University of New South Wales told ABC News 24 that there were many different ways it could approach this radical change to our financial system.
“We’re at a very intersting spot right now where there are so many CBDC projects and so many governments thinking about this at the same time,” he said.
“Some have proposed to combine efforts and make a joint initiative that connects CBDC platforms which could help cross-border payments.
“But the objectives of different regulators in different countries when designing their own CBDC is very different.
“In Sweden for example, they’re thinking about how, in the absence of cash, the entire payment system will be controlled by private payment providers and so the CBDC’s role would be to provide a payment platform for people.”