Potential central bank digital currency (CBDC) use cases ranging from payments in livestock auctions and for construction work are among 14 projects selected for CBDC trials in Australia.
The Reserve Bank of Australia (RBA) announced more than six months ago that it would be focusing on researching use cases in the next step of its explorations into a potential digital Australian dollar – and has now confirmed which projects, and their providers, have been picked to undertake what is being called ‘transactional pilot’ activity.
The newly announced list of focus areas – which includes a project focused on offline CBDC payments, as well as projects on corporate bond and foreign exchange settlement – will catch the eye of officials in central banks and government departments beyond Australia as CBDC-related conversations in a growing number of nations and jurisdictions increasingly start to focus on practical use cases.
The 14 projects (which Global Government Fintech lists towards the end of this article) were selected from more than 140 submissions and constitute a significant step for the RBA’s overall CBDC explorations, which see the central bank collaborating with the Digital Finance Cooperative Research Centre (DFCRC) and involves broader ongoing research. The DFCRC is a 10-year, A$180m (about £105m / US$128m) research programme funded by industry, Australia’s government and universities.
‘The submissions included a number of use cases that are high-level or conceptual in nature, which are not being proposed for near-term implementation in the transactional pilot,’ the DFCRC states on a dedicated CBDC webpage. ‘These submissions are valuable inputs to the broader CBDC research project, which is focusing on the financial or payment services that might become feasible if a CBDC was introduced in Australia. In turn, this will assist considerations about the potential economic benefits and design of a CBDC.’
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Explaining the CBDC pilots
The livestock auctions initiative is being led by digital assets company Fame Capital, with the ‘solution’ being an online auction platform for direct peer-peer settlement of transactions via programmable CBDC payments.
‘Onsite livestock auctions require considerable cost and time investment for both buyer and seller. Payment is directed through a third-party auctioneer creating risk and cost,’ explains a ‘CBDC pilot use cases’ page on the DFCRC website (this page links to summaries of all 14 examples; Global Government Fintech reproduces its summary of the livestock auction case in full at the end of this article).
The construction payments pilot, meanwhile, will use a 1:1 CBDC-backed stablecoin for a commercial bathroom renovation project. The pilot will involve one builder (payee) and one wholesale customer (payer) who will use a purpose-built app to co-ordinate their contract, invoicing and payment. ‘Construction company failures happen frequently due to disputes over scope of work, lack of payment visibility, delayed or missed payments and uncertainty over available liquidity,’ the ‘CBDC pilot use cases’ page notes.
The offline payments project is being led by ANZ (one of Australia’s top four banks) and will see a solution developed by which two universities can trial offline CBDC payments via near-field communication (NFC)-enabled smart cards loaded with funds. ‘The aim is to demonstrate how an organisation like a university can step in and provide immediate financial support through the disbursement of CBDC in emergency situations, such as where students are unable to access funds online or traditional banking services,’ explains the ‘CBDC pilot use cases’ page notes.
ANZ is involved in three further CBDC pilots: for ‘nature-based’ asset trading (alongside Commonwealth Bank); SuperStream payments (SuperStream is a standard for processing company payments data and payments electronically in Australia); and also CBDC distribution.
‘Enthusiastic engagement by industry’
“We are delighted with the enthusiastic engagement by industry in this important research project,” said the RBA’s assistant governor (financial system) Brad Jones in a media release confirming the 14 CBDC use case pilots.
“It has been encouraging that the use-case providers that have been invited to participate in the pilot span a wide range of entities in the Australian financial system, from smaller fintechs to large financial institutions.”
“The pilot and broader research study that will be conducted in parallel will serve two ends – it will contribute to hands-on learning by industry, and it will add to policy makers’ understanding of how a CBDC could potentially benefit the Australian financial system and economy,” Jones added.
A report on how the use cases have gone is expected to be published in about three months’ time.
*** Brazil’s central bank has also provided an update on its progress towards introducing a CBDC. Banco Central do Brasil announced on 6 March that new guidelines (‘diretrizes’) have been agreed for a ‘Real Digital’ (digital real), which effectively fires the starting-gun for tests to begin.
Australia’s CBDC pilot: 14 use cases (and providers or consortium lead)
1) Offline payments | ANZ
2) Nature-based asset trading | ANZ / Commonwealth Bank
3) SuperStream payments | ANZ / Oban
4) Corporate bond settlement | Australian Bond Exchange
5) Tokenised foreign exchange (FX) settlement | Canvas Digital
6) GST Automation | Commonwealth Bank / Intuit
7) CBDC custodial models | digi.cash
8) Livestock auction | Fame Capital
9) High-quality liquid assets securities trading | Imperium Markets
10) Interoperable CBDC for trusted ‘web3’ commerce | Mastercard / Cuscal
11) Funds custody | Monoova
12) Construction payments | NotCentralised
13) Tokenised bills | Unizon
14) CBDC distribution | ANZ
Australia’s CBDC pilot case study: livestock auction
Project Team
Fame Capital
Target
Livestock farmer
Problem
Onsite livestock auctions require considerable cost and time investment for both buyer and seller. Payment is directed through a third-party auctioneer creating risk and cost.
Solution
An online auction platform for direct peer-peer settlement of livestock transactions. Programmable payment allows automatic payment of fees and levies to livestock associations.
CBDC leverage
CBDC for risk-free settlement with ‘hold’ functionality to escrow payment until livestock delivery.
Opportunity
Onsite livestock auctions require sufficient stock for an entire transport and incur high costs: two transport journeys, feed, auction yard fees and labour costs. Financial settlement occurs separately creating risk. An online auction platform with programmable CBDC payment enables settlement directly between buyer and seller with no counter-party risk. CBDC hold functionality and automatic multiparty payment pays seller and associated auction fees on delivery reducing costs to end user and administrative burden.
Pilot proposal
The pilot will run for two livestock auctions over two months. Specific lots will be identified for participation in the pilot, for a small number of recruited wholesale clients. Buyers will purchase CBDC for fiat. Buyers can see their credit balance through the online app. The auction operator (Farmgate) will conduct auctions, with settlements triggering credits in CBDC to the seller (less fees to Farmgate and Fame) and debits to the buyer (sale value plus fees to Farmgate and Fame).
Source: https://dfcrc.com.au/2023/02/28/livestock-auction/
FURTHER READING
Global Government Fintech’s dedicated ‘Digital Currencies’ section
Australia plans CBDC pilot as it hunts ‘use cases’ – our news story (12 August 2022) on the RBA’s plan to research specific use cases
Australia steps up retail CBDC explorations but unconvinced by policy case – our news story (24 November 2021) on a speech titled ‘The Future of Payments: Cryptocurrencies, Stablecoins or Central Bank Digital Currencies?’ given by the RBA’s payments policy head Tony Richards (his final speech before retirement)
Australian central bank explores wholesale digital currency’ – our news story (4 November 2020) on the RBA teaming up with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys to research the potential of a wholesale form of CBDC (a wholesale digital currency differs from a retail CBDC in that it would not be available to the general public) – see also this story
WATCH THIS
Global Government Fintech held a webinar on 7 February 2023 asking ‘Can central bank digital currencies help tackle poverty?’ (click to read article) featuring panellists from the Bahamas, Eastern Caribbean and Canada. WEBINAR WATCHBACK.
