A decision to launch a digital Australian dollar is ‘likely to be some years away’, the Reserve Bank of Australia (RBA) has said in an update on its explorations into the prospects for a potential central bank digital currency (CBDC).
Australia’s central bank and the Digital Finance Cooperative Research Centre (DFCRC) – a 10-year, A$180m (about £91.5m / US$115m) initiative funded by the government, industry and universities – on 23 August released a report summarising the findings of research involving private companies that explored 16 pilot CBDC use cases, which ran from March to July.
The ‘Australian CBDC Pilot for Digital Finance Innovation’ publication will likely be seen as serving primarily to tee up further research phases rather than accelerate machinations towards a potential CBDC, sustaining Australian authorities’ hitherto unconvinced tone on the topic.
‘Many of the issues identified in the project and in earlier research will require a programme of research that is likely to unfold over a number of years,’ the 44-page report states. ‘Considering the broader context – where the Australian payments system is currently meeting most of the needs of end-users and work on CBDC in advanced economies is generally still in an exploratory stage – it is likely that any serious policy consideration of issuing a CBDC in Australia is still some years away.’
Its publication comes just over a couple of months after the government’s issuance of a ‘Strategic Plan for Australia’s Payments System’. This indicated support for the Treasury and RBA continuing to explore the policy rationale for an eAUD, stating that the Treasury and central bank ‘will release a paper in mid-2024 that takes stock of the work to date by the Treasury and the RBA on CBDC in Australia, and outlines the forward workplan for Treasury and the RBA on CBDC in the broader context of the future of digital money in Australia.’
RELATED ARTICLE Australian government unveils new payments strategy – our news story (12 June 2023) on the release of the 40-page ‘Strategic Plan for Australia’s Payments System’
16 CBDC use cases – four themes emerge
The RBA announced details of 14 projects had been selected for ‘transactional pilot’ CBDC activity in March. For reasons including that one use case (involving multiple industry participants) evolved into two separate use cases, it transpired that 16 CBDC use cases in total were trialled.
Four themes emerged: enabling ‘smarter’ payments; supporting innovation in financial and other asset markets; promoting private digital money innovation; and enhancing resilience and inclusion in the digital economy.
In respect of ‘smarter’ payments, the report states that many submissions highlighted the ability to directly control and programme a tokenised CBDC as enabling a range of complex payment arrangements that are not effectively supported by existing payment systems. Programmability has emerged as a big focus for many CBDC projects worldwide.
In respect of supporting innovation in financial and other asset markets, the report states that there was significant interest from the private sector in exploring the tokenisation of financial and other (real) assets on distributed-ledger technology (DLT) platforms, with CBDC being used in the atomic settlement of transactions. One example here is traditional debt securities markets, where settlement times are typically measured in days.
In respect of promoting private digital money innovation, submissions highlighted the role that a CBDC could potentially play in promoting interoperability and uniformity of new forms of private digital money, such as tokenised bank deposits and so-called stablecoins (‘backed by high-quality assets’).
In terms of boosting payments’ resilience and inclusion, some submissions explored the possibility that CBDC could provide households and businesses with an alternative way to make payments in certain scenarios, including the ability to make offline electronic payments in scenarios where electricity and/or telecommunication services were not available, for instance following natural disasters.
RELATED ARTICLES Australia plans CBDC pilot as it hunts ‘use cases’ – our news story (12 August 2022) on the RBA’s plan to research use cases (our 9 March 2023 news story reported the use case projects selected)
Fields ripe for further research
Areas ripe for further research are mentioned in the report.
One section titled ‘CBDC capabilities and features’ notes that in a number of use-case submissions, it was not clear that a CBDC was exclusively required to achieve the desired economic outcomes. ‘Some combination of other forms of private digital money, wider access to RBA settlement account balances and enhancements to existing payments infrastructure, may have also yielded improvements over current practices,’ the report notes, adding that ‘there is considerable scope for further research in this regard’.
Unlike some CBDC pilots worldwide, there was no intention to evaluate the technology that would be best suited to implementing a CBDC. But the report nonetheless notes that a number of technical findings relating to the design of the pilot CBDC platform – which took the form of a private, permissioned DLT platform based on Ethereum (Quorum) – and how it integrated with use-case platforms ‘may be relevant for future research’.
The report also mentions legal and regulatory issues, stating that ‘in many instances, there was uncertainty around the legal and regulatory treatment of the digital assets, in particular whether they were regulated “financial products” under the Corporations Act 2001.’ The report states that questions arise about whether the licensing and regulatory framework for clearing and settlement facilities under the Corporations Act ‘would be well calibrated to the risks associated with new business models facilitating atomic settlement of transactions in tokenised asset markets’.
Some legal and regulatory issues are already being addressed by Australia’s Treasury, for example via consultation on ‘token mapping’ launched earlier this year.
RELATED ARTICLE 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)
Programmable payments in spotlight
“The project yielded valuable insights into how a CBDC, alongside other innovations in digital money, could potentially unlock benefits for the Australian financial system and the wider economy,” said RBA assistant governor (financial system) Brad Jones in a media release issued alongside the report.
“It also highlighted the benefits of close engagement between industry and policymakers in exploring the opportunities and challenges associated with innovations in digital money,” Jones continued. “The key findings from the project will help to shape the next phase of the RBA’s research programme into the future of money in Australia. Alongside our ongoing work on cross-border payments, this will include deepening our understanding of the role that tokenised asset markets and programmable payments could have in the Australian economy.”
“The report underscores that innovation in finance is a continuous journey,” said DFCRC chief executive Dr Andreas Furche. “The strong industry engagement in this project speaks to the importance of collaboration between central banks as ultimate issuers of national currency, and industry experts driving its potential use-cases. As we move forward, our research on CBDC could look to target use cases where CBDC has the best potential to provide an infrastructure layer for further innovation in financial products and services.”
CBDCs that are live worldwide include the Bahamas’ ‘Sand Dollar’, launched in 2020; the Eastern Caribbean Central Bank (ECCB)’s ‘DCash’, launched the following year; and Nigeria’s ‘eNaira’, also launched in 2021.
Brazil‘s central bank published details about a ‘testing phase for operations’ for the South American nation’s prospective CBDC, newly named ‘Drex’, earlier this month.
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