The Reserve Bank of Australia (RBA) believes that the development of digital currencies like bitcoin do not pose a threat to the financial system.
The Senate Economics References Committee inquiry into digital currency was told during a public hearing in Sydney on Tuesday that the RBA believes it is unlikely that any benefits of regulation would outweigh the potential costs.
The RBA, represented by its head of payments policy Tony Richards and the department's senior manager David Emery said at the hearing that the use of digital currencies is still very limited in Australia.
"Given the very limited use and acceptance of digital currencies in Australia, digital currencies do not currently raise any issues for the bank in terms of the bank's monetary policy and financial stability mandates," Richards said in an opening statement.
While digital currencies are not legal tender, there is nothing to prevent two parties agreeing to settle a payment using a digital currency, he said.
However, one area where the RBA sees digital currencies taking hold is in the area of international transactions, which can be expensive and subject to delays in the receipt of funds.
While there are concerns over issues relating to taxation, anti-money laundering, counter-terrorism financing rules, and consumer protection, these are areas outside the RBA's realm of expertise and responsibility, the inquiry was told.
Richards also said that if the RBA deemed it necessary to take regulatory action in the digital currency payments system, the international character of such systems could place constraints on its ability to act unilaterally, meaning that any action taken might need to be suitably coordinated across international boundaries.
The inquiry also heard evidence from the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) suggesting that Australian banks have been eyeing bitcoin-associated customers with increasing caution.
In its submission to the inquiry, ASIC said that it was aware of a number of banks taking steps to cease dealing with bitcoin-related businesses due to concerns that digital currency providers pose an "unacceptable level of risk" to the banks' business and reputation.
The comments come as the notoriously volatile global bitcoin market continues to recover from a steep plunge in the digital currency's value in January this year, which saw bitcoin valuation fall from $224 to $175 in a matter of hours. At the time of writing, it stood at $254.
Additionally, organisations around the world that deal in bitcoin are being eyed with increased scrutiny after the collapse of what was once the world's largest bitcoin exchange, Mt Gox, and the hacking of digital currency exchange post Cryptoine.
In fact, the Bitcoin Foundation, which was formed in 2012 to promote the virtual currency, this week rejected suggestions by recent board appointee Olivier Janssens that the drop in the value of bitcoin, and the resulting drop in the value of its holdings of the digital currency, has effectively pushed the organisation into bankruptcy.
In a blog post on April 7, the organisation's board of directors said that it is not bankrupt, although it is moving to embark on its strategic plan in order to continue operation following the hit its bottom line has taken since the drop in bitcoin value.
"In the last board meeting, the management team presented an austere, yet clear, path forward for the board," the board said. "The board of directors voted on March 31, 2015, to proceed with the strategic plan and to work out a communications plan to roll out the decision along with the finished annual report for members and the public.
"That strategic plan proposed by the management team was to be rolled out this week," it said.