Australia, NZ central banks shun "volatile" digital currencies

* Bitcoin continues to have structural flaws - RBA

* RBA has no plan to adopt digital currencies

* RBNZ warns of financial stability risks

* digital currency can increase bank run risk - RBNZ

By Leika Kihara

WELLINGTON, June 26 (Reuters) - The central banks of Australia and New Zealand ruled out on Tuesday the notion that they would issue official cryptocurrencies anytime soon, warning the potential damage to their banking systems could outweigh the benefits.

Tony Richards, head of the Reserve Bank of Australia’s (RBA) payments policy, said that bitcoin and other cryptocurrencies had not proven their worth as reliable stores of value or means of payment because of their volatility and vulnerability to hacking.

“Nine years after its launch and about five years since it entered the public consciousness, bitcoin continues to have structural flaws that make it unsuitable for many uses, many of which stem from its inefficient verification process,” he said in the text of a speech given in Sydney.

Given their low usage in Australia, cryptocurrencies were unlikely to have any significant impact on the RBA’s oversight of monetary policy and the banking system, he said.

The RBA had no plan for the time being to adopt any new electronic form of money for households, he added.

“Based on our interactions with our counterparts in other countries, it is also not front of mind for most other advanced economy central banks,” Richards said.

The Reserve Bank of New Zealand (RBNZ) also said that while it was open to exploring new technology, it was unclear whether a central bank digital currency will bring conclusive benefits.

While digital currencies could make distribution of money safer and cheaper, they could increase the likelihood of bank runs during periods of financial instability, said RBNZ Deputy Governor Geoff Bascand.

That was because in times of financial stress, depositors could easily and remotely transfer large deposit holdings to a central bank digital currency, he said.

“A breakdown in the financial system can cause enormous economic and social harm. We could not issue a digital currency if it might undermine financial stability,” Bascand said in the text of a speech at an Auckland conference.

“The payments industry is dynamic, which is good. But the Reserve Bank must be a considered prospector in the exploration for digital currency benefits - we have New Zealand’s currency and financial system at stake.”

Wild swings in the price of cryptocurrencies, and fears they may be used for illicit activities such as tax evasion, have drawn the attention of global policymakers.

Finance leaders of the Group of 20 major economies agreed in March to open the door to regulating the booming industry, though they have only just started adopting individual rules due to the difficulty of agreeing on a multilateral approach.

Most central banks are wary of embracing cryptocurrencies and say they have no plans to issue their own digital money with the exception of Sweden, where the shift away from the use of cash is significantly more advanced than in other countries.

Bitcoin prices dropped their lowest in more than four months on Friday, continuing a downtrend driven by authorities’ measures to impose tighter regulation on cryptocurrencies.