ANZ Bank plans to roll out to more corporate customers its stablecoin, the A$DC, which is fully collateralised with Australian dollars and under review by multiple regulators.
ANZ executive Nigel Dobson told The Australian Financial Review Banking Summit on Tuesday its initial use case for the stablecoin – which allows an institutional client to invest in crypto assets – was being extended to enable people to buy a broad range of digital assets with Australian dollars.
ANZ’s Nigel Dobson at the AFR Banking Summit on Tuesday. “When you think about stable coins that are, issued by a commercial bank in Australia, it really is just a different form factor of money.” Michael Quelch
The A$DC is being piloted by the federal government to help collect excise taxes, and ANZ wants to use it to facilitate carbon trading. Down the track, the bank is keen to provide it to retail customers to help them buy non-fungible tokens (NFTs) with Australian dollars.
Since ANZ announced the coin in March – to save Smorgon Steel fees and reduce foreign exchange risk as it traded crypto markets – regulators have scrutinised the A$DC structure, including asset backing and custody arrangements.
Mr Dobson said discussions with AUSTRAC, ASIC and APRA had been “incredibly constructive” and he was confident additional use cases would materialise.
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Updated: Nov 24, 2022 – 10.14pm. Data is 20 mins delayed.
ANZ’s commitment to the A$DC comes amid widespread volatility in crypto markets, which has reduced the hot money pouring into the space.
Indications of regulatory support for a bank to create a fully backed stablecoin contrasts with wariness about private stablecoins assembled by tech start-ups, especially algorithmic ones such as terraUSD, which spectacularly collapsed in May and destroyed $26 billion of value.
“When you think about stablecoins that are, issued by a commercial bank in Australia, it really is just a different form factor of money,” Mr Dobson told the Summit.
“Are we going to extend it [the A$DC]? Yes, absolutely we will. And this will be based on our institutional customers demand, as they reveal, increasingly, their own tokenisation strategies.”
“Tokenisation” refers to the digitisation of a real-world asset, including property or a hard commodity, to allow it to be traded on blockchain technology, creating liquidity in previously illiquid markets and reducing settlement times. It was estimated in a study last year the global asset tokenisation market could reach $US24 trillion by 2027.
“We believe that tokenised assets can be inexorably developed, to deliver greater efficiency, speed, transparency and value for customers over time,” Mr Dobson said.
APRA chairman Wayne Byres told the summit Australian regulators were working on stablecoin regulation through changes to “stored value facilities” that were already in train. He said he would update the local setting to reflect the Basel Committee on Banking Supervision, which was examining rules for banks dealing with crypto assets including stablecoins.
ANZ said its A$DC was being tested to help the government collect excise in the distilling industry, after a proof of concept with Convergence.Tech and the federal government.
The stablecoin functions as an instrument to pay excise tax based on smart contracts that talk to each other and could potentially recover at least $45 million a year lost tax revenue, according to KPMG.
ANZ and National Australia Bank are exploring how stablecoins could lift liquidity in emerging carbon credit markets.
“We think that’s going to have exponential growth over the next ten years, and the elements of tokenisation that can be applied to that marketplace to make it much more efficient, more global, and frankly, more available to a wider range of consumers but certainly to institutional investors,” Mr Dobson said.
“We believe stablecoins form a very important element of the settlement value and the settlement process when it comes to tokenised carbon credit.”
ANZ’s stablecoin use cases will initially focus on operational problems for its big-end-of-town corporate customer base. But in time this could extend to retail offerings, such as letting people spend AUD in the metaverse, and to buy NFTs, which enables creators to accrue the value of ownership.
“We think that the growth area is not going to be so much in crypto, but in NFTs. NFTs are already in the market around sports memorabilia and [can extend to] anything digitally created.”
Coalition of the curious
Mr Dobson said conversations with regulators had been positive. “It is nice to see APRA, ASIC and AUSTRAC all on the same virtual call together. We’ve got this kind of coalition of the curious going on at the moment, which I think is wonderful, and you know, the integrated interactions have been incredibly constructive.”
ANZ and NAB’s interest in stablecoins at the institutional bank level contrasts with their retail arms, which are not following CBA’s plan to make speculative crypto coins available to retail customers – a move being scrutinised by ASIC and APRA.
Mr Byres said APRA “obviously expects banks exploring the potential to offer new and innovative forms of finance to do so based on a well-considered risk assessment”.
He said APRA was consulting on requirements for the prudential treatment of crypto asset exposures and “I would hope we will see the next version of the latter in a couple of months’ time”.
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The Council of Financial Regulators is developing options for incorporating payment stablecoins into the proposed regulatory framework for “stored value facilities” (SVFs), which can feel akin to a deposit for customers, but are not government guaranteed in the event of a financial crisis.
“Subject to the development of the broader legislative and regulatory framework – which will depend on the priorities of the new government – we would hope to consult on prudential requirements for large SVFs in 2023,” Mr Byres said.