Today Reserve Bank of Australia Governor Philip Lowe said the central bank is exploring the pros and cons of stablecoins as an alternative form of digital currency. His comments were made as part of a talk that touched on the Bank’s central bank digital currency (CBDC) work.

Lowe stated: “We are also looking at the pros and cons of an alternative form of a digital Australian dollar – a payments stablecoin issued by the private sector, much like banks issue deposits. If we were to go in this direction, payment stablecoins would need to be backed by a strong regulatory regime, just as it applies to deposits.”

In September, Australian Senator Andrew Bragg published a bill to regulate digital assets and stablecoins.

Like many other jurisdictions, Australia’s Council of Financial Regulators (CFR) is working on regulating stablecoins, as reported in March. This is particularly focused on stablecoins used for general payment purposes.

One of Australia’s largest banks, ANZ, issued a stablecoin in the same time period.

Last week, the Reserve Bank of Australia released a report on stablecoins confirming the regulatory work and highlighting the risks for banks. For example, if bank deposits are used as asset backing, a run on the stablecoin could trigger a bank run. Alternatively, if the supporting assets are government securities, there is a risk that these markets could be destabilized in the event of a run on stablecoins. Or banks could suffer reputational risks by providing stablecoin-related services if a stablecoin goes into trouble.

In the meantime, as the Governor mentioned, Australia is working on an industry pilot program in a joint initiative with the Digital Finance Cooperative Research Center (DFCRC). While many of the use cases appear to be more focused on institutional applications, a wholesale CBDC, the DFCRC has confirmed that it covers retail CDBC as well.

On the subject of a retail CBDC, the Governor said today: “We are open-minded about whether a public policy case will emerge to go in this direction.” Meanwhile, Assistant Governor Brad Jones explored some of the pros and cons of CBDC in a speech last week.