The use of cryptocurrency is on the rise and the lack of regulation in the sector could threaten Australia’s national security, according to Liberal senator and crypto advocate Andrew Bragg.
Senator Bragg will introduce a private member’s bill when parliament next sits, including new rules governing crypto exchanges, and Chinese banks dealing with e-yuan in Australia.
“The Chinese government is piloting what they call the digital yuan, which is a digital form of currency, and they’re currently trialling that outside of China as well, with the UAE [United Arab Emirates], Hong Kong and Thailand,” he told RN Breakfast host Patricia Karvelas on Monday.
“That currency, if it became widespread in the Pacific, or even within Australia, would give the Chinese state enormous power, economic and strategic power that it doesn’t have today.
“So I think we need to be prepared for that. We need to know more about this digital currency, so the bill establishes reporting requirements in that regard.”
China far ahead of Australia on digital currencies
China was the first major economy to explore the use of digital currencies in 2014, and is far ahead of its global peers.
It has been conducting limited trials of the e-yuan over the past three years.
However, China has yet to launch the digital currency across its population of 1.4 billion people — which is seen by critics as a way to ramp up state control of the payments system.
In September last year, China’s government imposed a blanket ban on all cryptocurrency trading.
Unlike bitcoin, ether and other cryptocurrencies (which are “decentralised”, or not controlled by the government), the e-yuan falls under the authority of the People’s Bank of China.
Australia, meanwhile, is nowhere near as close to launching its own digital dollar.
Reserve Bank governor Philip Lowe has long been sceptical about the idea of a digital currency, saying Australia already had a fast and efficient electronic payments system in place.
But last month, the RBA announced it was undertaking research into digital currencies as part of a limited “ring-fenced” pilot program — to see how it could actually be used by consumers and businesses in Australia.
Tougher rules for ‘stablecoins’
There is currently very little regulation in the Australian cryptocurrency industry.
A crypto exchange is only required to follow the general provisions of the Corporations Act, and collect data about its customers (for the financial crimes regulator AUSTRAC) when they open a trading account.
Last year, Mr Bragg chaired a Senate committee that made 12 recommendations on how to improve cryptocurrency regulation.
They include a new market licensing regime for digital currency exchanges, amendments to tax rules around cryptocurrencies to clarify when a capital gain or loss is realised, and the introduction of tax incentives for companies that use renewable energy for crypto mining (a process that leads to the creation of new digital coins).
But after the Coalition’s defeat in the May federal election, Senator Bragg’s recommendations have not been progressed by the new Labor government.
His private member’s bill goes further than his initial recommendations by seeking to regulate “stablecoins” (a type of cryptocurrency usually pegged to a real world asset, like the US dollar), by making it an offence to issue one without a licence.
“What we’ve seen in the last six months or so has been the collapse of major stablecoins, including the US stablecoin Terra,” Senator Bragg said.
“The Governor of the Reserve Bank in Australia and Janet Yellen [the US Treasury Secretary] have been calling for regulation, so that if someone wants to issue a stablecoin, they are required to hold reserve capital to meet any risk.”
In May, the value of Terra crashed spectacularly – to the point where it became completely worthless.
Many investors were burnt as this particular “stablecoin” was promoted as a “safe” way to earn high returns (up to 19.6 per cent) in a low interest rate environment.
However, Terra was not backed by real world currency, but by its ‘sister coin’ Luna, which also saw its value plunge to zero.
‘Unnecessary harm’ for consumers
“It’s very important that we protect consumers against any unnecessary harm,” the senator said.
Australian consumers lost $158 million to investment scams between January and May, according to data from the Australian Competition and Consumer Commission (ACCC).
This was a 314 per cent surge compared to the same period last year, and the overwhelming majority of those scams related to cryptocurrency investments.
Given the federal Liberal party is in opposition, the odds of Senator Bragg’s private member’s bill being passed are slim.
In August, Treasurer Jim Chalmers said the first step of Labor’s crypto agenda was to prioritise “token mapping” work this year.
Basically, the aim of this exercise is to work out which crypto assets are already covered by to financial services law – and which ones are “non-financial products” (which will require their own special legislation).