Home Digital Currencies Australia plans CBDC pilot as it hunts ‘use cases’

Australia plans CBDC pilot as it hunts ‘use cases’

Reserve Bank of Australia: has announced the next step in its CBDC investigations | Credit: RBA

Australia’s central bank is focusing on researching ‘use cases’ in the next step of its investigations into a potential digital Australian dollar.

The Reserve Bank of Australia (RBA) has – to date – been cautious about a potential central bank digital currency (CBDC). But the central bank this week has announced an intention to run a ‘limited-scale’ CBDC pilot that that will operate in a ‘ring-fenced environment’.

The pilot will form an important part of the next stage of the RBA’s overall CBDC research project, which is expected to take ‘about a year’ and sees the central bank continuing its collaboration with the Digital Finance Cooperative Research Centre (DFCRC).

Industry participants will be invited to develop specific use cases that demonstrate how a CBDC could be used to provide ‘innovative and value-added’ payment and settlement services to households and businesses, according to the central bank’s announcement.

The RBA and DFCRC plan to select a ‘range’ of different use cases to participate in the pilot based on their potential to provide insights into the possible benefits of a CBDC. A report on the findings from the project, including an assessment of the use cases developed, will be published. The findings will contribute to research into the ‘desirability and feasibility’ of a CBDC in Australia.

Aiming to ‘address research gap’

‘Considerable research has been undertaken by central banks, including the Reserve Bank, into the feasibility and possible technical design of CBDC, in particular exploring the potential use of new technologies such as distributed ledger technology [DLT],’ the RBA’s announcement states.

But it asserts that one question that has garnered ‘less attention to date’, especially in nations such Australia that already have relatively modern and well-functioning payment and settlement systems, is around use cases for a CBDC and the potential economic benefits of introducing one.

‘The project with the DFCRC will help address this gap by focusing on innovative use cases and business models that could be supported by the issuance of a CBDC,’ the RBA explains. ‘The project will also be an opportunity to further understanding of some of the technological, legal and regulatory considerations associated with a CBDC,’ it adds.

The RBA’s focus reflects themes that were explored during a panel session titled ‘How can CBDCs help deliver public good?’ at the Global Government Fintech Lab (held in Estonia in June). This session explored whether CBDCs can offer tangible public policy benefits or are a ‘solution in search of a problem’ (as some sceptical analyses, for example, a UK House of Lords report in January, have concluded).

During the session, Rainer Olt of the host nation’s central bank – which has fed into Eurosystem research into a potential digital euro – asked rhetorically (in the Estonian context): “We have already instant payments – if you make central bank money instant, it doesn’t add value, so where is the added value?”.

RBA ‘not convinced to date’

In a speech in November last year the RBA’s then-head of payments policy said the authority was “engaging with” the DFCRC on possible projects as it looked to experiment with retail CBDC. He expressed a similar view to Olt.

Tony Richards, who was delivering his final speech – titled ‘The Future of Payments: Cryptocurrencies, Stablecoins or Central Bank Digital Currencies?’ – before retiring from the RBA, described his colleagues as “not convinced to date that a strong policy case has emerged in Australia for a CBDC”.

The main reason for the RBA’s caution was, he said, that Australia’s existing electronic payments system “already provides households and businesses with a wide range of safe, convenient and low-cost payment services”. He described the New Payments Platform (NPP) – open access infrastructure for instant payments launched in 2018 – as a “major upgrade” that “allows real-time, data-rich, easily addressed account-to-account payments that can be made on a 24/7 basis”.

“Looking ahead, the NPP will be used to deliver incoming cross-border payments and could potentially be linked up with other fast payment systems to enable instant cross-border payments,” he continued. “More broadly, much – if not all – of the innovation and new functionality that could potentially be enabled by a CBDC could in principle also be enabled by innovation based around commercial bank deposit accounts, e-money or stablecoins,” he said.

‘No longer a question of technological feasibility’

The Australian Treasury is participating as a member of the steering committee for the project as part of its joint work with the RBA on exploring the viability of a CBDC in Australia.

A paper is due to be published in the ‘next few months’ that will explain the objectives and approach of the project in detail and how industry participants will be able to engage.

“This project is an important next step in our research on CBDC,” said RBA deputy governor Michele Bullock. “We are looking forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia.”

The DFCRC is a 10-year, A$180m (about £105m / US$128m) research programme funded by industry, Australia’s government and universities.

DFCRC chief executive Dr Andreas Furche said: “CBDC is no longer a question of technological feasibility. The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximise those benefits.”

FURTHER READING

=>>> Global Government Fintech’s dedicated ‘Digital Currencies’ section <==

‘Australia steps up retail CBDC explorations but unconvinced by policy case’ – our news story (24 November 2021) on Tony Richards’ ‘The Future of Payments: Cryptocurrencies, Stablecoins or Central Bank Digital Currencies?’ speech

‘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

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Ian is editor of Global Government Fintech and also writes for media including City AM and #DisruptionBanking. He is former UK director for the pan-European media network Euractiv (2011-2018), editor of Public Affairs News (2007-2011) and news editor of PR Week (2000-2007). He was shortlisted for ‘Editor of the Year’ at the British Society of Magazine Editors (BSME) Awards in 2010. He began his career in Bulgaria at English-language weekly the Sofia Echo.