I too want to give credit to Senator Bragg for bringing this very important piece of legislation forward and giving a kick along to the efforts towards appropriate regulation of cryptocurrency and digital assets in Australia. I’ve been fortunate enough to spend some time with people in the fledgling cryptocurrency and digital assets industry in this country. They’re great Australians. They’re pioneers in this field. They’ve done some really innovative work, globally, towards establishing these assets, which are becoming much more commonly used across the world.
I’ve also been proud to play a small effort over my time in the Senate in helping change some of the regulations to help get the regulations to catch up. I think it is very important that we continue this discussion. It’s a bit of a shame, though, that what has been a bipartisan approach to this effort does seem to have fallen by the wayside since the election. As Senator Bragg outlined, the former government was developing a regulatory framework for digital assets. It was on track to come into force some time last year. Now, almost a year on from that date, we don’t see any action from the new government. It would appear that the new government has tossed out all of that work that had been done with the industry, with the bureaucracy and with the regulatory authorities. There’s no real cogent explanation of why they’ve done that apart from perhaps thinking that anything we, the Liberal-National coalition, had done was not worth it and that they need to put their own stamp on it. The victims of that political and partisan approach are the many Australians who use these assets, rely on them and are potentially put at risk by using them, and, of course, the broader industry, which now struggles to get investment in our country because we do not have an appropriate and world-standard regulatory structure.
As I mentioned, this has been a bipartisan effort to date. I got involved in this through one of the very first Senate inquiries I was involved in, which was a Senate inquiry into cryptocurrency. I must pay tribute to Senator Sam Dastyari. He pushed it at the time. He was chair of that committee. I think he was chair. He might not have been chair, actually. But he definitely acted like a chair! Sam would do that from time to time. He pushed it really hard and we worked together to get to the bottom of what was happening. At the time, hardly anyone had heard of bitcoin. I actually remember telling a staffer that I should go and buy some Bitcoin to see what it was like, and I’m kicking myself still that I never got around to doing it—I think it was about $400 at the time. Anyway, enough of my poor financial choices!
But Sam and I worked very closely together to find the issues involved, and I’m proud of that Senate committee report because it actually led to real change, which of course is not always the case. We identified that there were issues around the GST, in the way that was applied to people using cryptocurrencies to pay for goods and services. There were issues with the income tax system as well, especially when converting from a cryptocurrency back to a national currency. And to give then Treasurer Joe Hockey and the government their due, they duly considered these recommendations and made the changes. I think that within a year or two they had acted on our Senate inquiry recommendations and made those changes. I know that many in the then cryptocurrency industry were very thankful for that. It helped a lot for them in selling Australia as a place for investment in cryptocurrency, with a government that was forward leaning in developing a regulatory structure for digital financial services.
As I said, that has continued; that broader regulatory structure was in the design phases under the former government. I’m just asking—I’m humbly requesting here, and so is Senator Bragg—’Let’s get on with it and do this now.’ It’s about time. From speaking to the industry, this is something I know they want: they want this kind of structure so that they can give confidence to consumers. It puts them on the same playing field that exists for non-digital assets and it will help them attract more consumers because they have a level of protection from government regulation. And, crucially, it will allow them to attract more capital, because if such regulatory structures exist in other countries and we don’t have one then that’s a major, major gap for us. So let’s just get on with it. I’m confident that Senator Bragg and all of us on this side are willing to work with the government on this. I realise the government is unlikely to support Senator Bragg’s bill but, hopefully, it will spur them on to bring their own bill forward which we can duly consider. As I said, I’m sure there’ll be a cooperative approach from this side and all of the chamber to make sure that this can work.
One reason I’m a bit perplexed, though, about the go-slow on this is that since last year’s election it has become even more important to establish such a regulatory structure. We have seen extremely high-profile and high-consequence failures of cryptocurrency businesses. Those were overseas, primarily; I’m sure many Australians, though, would have been affected by the collapse of SFX and the issues with firms like Binance and some so-called ‘stablecoins’, which have collapsed in value. Many Australians probably have lost thousands of dollars through these deficiencies. Obviously, that has spurred on a response in the US, primarily, to regulate the sector. It should also increase urgency in this country, because, as I said, even though those firm firms were not Australian—and, to my knowledge, I’m not sure if any Australian firms have been caught up with these big scandals—many Australian consumers do access these services from overseas. Obviously, there’s now a heightened degree of caution in the investment community about digital assets and about investing in any particular assets which might have questionable backing.
That’s why this bill is very important, and I give Senator Bragg credit here for the deep thinking he has given to this bill. He does go to great lengths to make sure that ASIC have the appropriate powers and oversight here, as they do with non-digital assets. There are specific provisions in this bill for minimal capital requirements, which would help to avoid—or at least lower the risk of—the situation we saw with SFX and others. There are requirements on digital asset companies to segregate customer funds so that they’re not mixed up with other parts of the business. Obviously, it’s important to have better governance, disclosure and record-keeping requirements in this bill. And, very importantly, this bill also has specific regulation of the so-called stablecoins. These are coins that are normally linked to the value of some other underlying assets—sometimes a national currency and/or a commodity price—but often, obviously, their stability is only as strong as their direct backing from that underlying asset. This bill would require those issuing stablecoins to hold in reserve the full amount of their liabilities with other authorised deposit-taking institutions in Australia. That would, of course, give consumers pretty much full confidence in the value of such stable coins, which no doubt will play a very important role in the digital marketplace because probably the greatest barrier to people holding digital assets is their still somewhat unstable value compared to other currencies. Our currency itself has been up and down quite a bit recently, but there are sometimes pretty wild swings in the value of cryptocurrencies.
People who don’t want to face such a risk do have the option of investing in stable coins, but they themselves have proven to be often inadequate primarily I think because of a lack of regulation and requirements on the issuers of those stable coins. This bill will fix that and help establish confidence in stable coins, which would potentially attract a whole lot more consumers to this space.
I also think it’s important to briefly touch on central bank digital currencies. There has been a lot of commentary about those in recent years. I myself am not convinced of the need for a central bank digital currency. I note that former Reserve Bank Governor Glenn Stevens also put some shade on whether or not there’s really a reason for central banks to issue so-called digital currencies. We have to keep in mind that in effect we already have a digital currency so to speak. Most of the money that’s created by the Reserve Bank is not done so via a printing press; it’s done via creating account balances in the accredited dealers with the central bank. That’s how our money supply works. It already is in effect in a digital form.
It’s not really clear what a central bank digital currency would do. There’s obviously potential to move to a blockchain, which is a different type of technology, but there’s not really a lack of confidence in the account keeping or record keeping of our major deposit-taking institutions, either with their accounts at the central bank or those we hold ourselves, so it’s not clear why we would need to move to a blockchain format. It’s very different obviously in the cryptocurrency world where you’re often dealing with people you do not know or have little understanding of their history. The blockchain has helped deal with those issues of trust and confidence in markets. It has helped build this marketplace by establishing this technology. We don’t really need that in the established accounts that we have with people.
There is a concern out there about central bank digital currencies. If there is a blockchain or a ledger that is managed by a central authority or a government authority, do they then ultimately have access to all the transactions that occur on that ledger? Obviously there may be some ability to encrypt those transactions themselves, but that often raises the point that ultimately someone has the key. Is there someone who can decrypt these things? If it is a government official or a government agency, I think there are very legitimate questions about how much we as a society want governments to know, or potentially to know, every transaction that everybody does and to potentially in the future control or restrict those transactions.
We’ve already seen very high-profile incidents of people being debanked, especially in the United Kingdom, over their political views. They, admittedly, have not been at least substantially directed by government. It’s more just big corporates acting outside of their remit. There is obviously the potential for governments in the future to use such massive power if they were to have it. There are massive amounts of information, and information is power. If they had information on all of our transactions, I worry what that would mean for our free and open society.
Noting that I believe this bill itself does not at all seek to establish or promote the use of central bank digital currencies, there is a section of this bill that would at least require the Reserve Bank to disclose to ASIC if it did hold any foreign central bank digital currencies in Australia. This is something that has already been established in the United States, and I think it’s very sensible that such an approach be established here as well.
As I mentioned earlier, the bill would give ASIC more powers here to monitor and enforce licence requirements. This is something, as I mentioned earlier, the industry is desperately crying out for. They want to be licensed; they want to have accreditation in a government certification process. I think the lack of one is limiting the development of the cryptocurrency and digital assets sector in this country. So I think what’s been put forward here is very sensible. I haven’t heard any suggestion that we create a separate agency to do this. ASIC already do this work for the financial services sector. It would not add a significant amount of red tape or cost for ASIC to extend their regulatory oversight to the digital asset sector.
The bill also, I think for the first time, provides clear definitions of digital assets, digital investment exchanges and stablecoins. That’s something that’s very important, too, to cover the broader regulatory landscape. There’s obviously sometimes a bit of a grey area between what digital assets are and what they are not.
I will finish where I started, which is by encouraging the government to take this up. I think Senator Bragg has done remarkable work as a private senator. To me, the bill here is something that could almost be adopted. Obviously, it would normally go through both chambers and through more committee work than has happened to date. But really there is no excuse now, given the work that Senator Bragg has done, for the government not to get on with this and to get Treasury, who definitely have been working on this, to bring forward a bill that takes up some of Senator Bragg’s work. As I said before, I’m sure we’d be happy to cooperate on the details. There’ll be lots of those to work through. So let’s just get on with it. There has been a bipartisan approach over the past decade—a successful approach, I think—but we now risk losing some of those businesses, some of those innovative Australians at the forefront of technology in the digital asset space, unless we can resolve this and move forward. Again, I congratulate Senator Bragg. Let’s get on with it. Let’s work together, make this happen and support a great Australian industry.
