Top economist issues Jim Chalmers a stern crypto warning
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The news: University of Queensland economics professor John Quiggin has warned the federal government against allowing crypto to play a prominent role in Australia's financial system, saying it threatens possible disaster down the track.
Quiggin, in an opinion column for The Guardian published on Tuesday, has raised strongly-worded concerns about the possibilities of contagious collapse due to the lack of value behind the asset. He said that as soon as the public decides crypto is valueless "it will become so".
The context: Treasurer Jim Chalmers appeared to shift his tone on crypto over the Christmas break, saying that while there were legitimate issues over the use of crypto by criminals there were potential investment opportunities that shouldn’t be over-regulated.
Chalmers told The Sydney Morning Herald that crypto "has a role to play and it’s part of modernising and innovating in our financial system". While he acknowledged the need for "appropriate protections and guard-rails" he said he wanted to make sure the government didn’t overdo it and "stomp on" the industry.
At the beginning of December, fund manager Mark Carnegie told Capital Brief the clock was ticking on the Australian government to get its cryptocurrency agenda sorted before Donald Trump enters the White House on 20 January. Trump has said he will ease regulation on the sector and be a "crypto president".
What they said: "In previous downturns in the crypto market, the loss in value has affected owners of crypto who are unwilling or unable to 'Hold On for Dear Life', but had no effect on the mainstream financial sector," Quiggin said in his column.
"By contrast, in the next few years, the exposure of traditional institutions is likely to run into the hundreds of billions, perhaps trillions. Mortgages will increasingly be secured against crypto collateral and serviced by the (hoped-for) profits from crypto speculation. Loans to crypto exchanges, which have been restricted in the past, will be allowed and encouraged, creating more opportunities for contagious collapse," he said.
"An obvious starting point for a crash would be a failure of one of the crucial, but opaque, 'stablecoins', which are designed to trade at a fixed price of one US dollar, and to facilitate the conversion of crypto into fiat currency ... Chalmers’ statement includes a promise of legislation for 'payment stablecoin' reforms, but it is hard to see how Australia can regulate a global firm like Tether."
The source: The Guardian
