Australia’s central bank is ‘looking to do experiments around’ retail central bank digital currency (CBDC) but is unconvinced that there is a ‘strong policy case’ in the country for state-backed digital money.
In a speech that revealed the Reserve Bank of Australia (RBA)’s latest thinking on a potential digital Australia dollar, its head of payments policy said the authority was “engaging with” the country’s recently created Digital Finance Cooperative Research Centre (CRC) on possible projects as it looks to experiment with retail CBDC – a CBDC that would be issued to the general public.
Tony Richards, delivering an address entitled ‘The Future of Payments: Cryptocurrencies, Stablecoins or Central Bank Digital Currencies?’, said that the central bank would be “working through the CRC to explore the opportunities arising from the digitisation of assets” alongside 28 further founding entities of the centre, which is backed by A$60m (about £32m) in federal funding.
Richards also said that the RBA plans to publish “shortly” a report on its work with four external parties exploring technical aspects of wholesale CBDC – central bank digital currencies intended for the settlement of interbank transfers and related wholesale transactions.
But his remarks overall largely struck a cautious tone on CBDC, describing his central bank colleagues as “not convinced to date that a strong policy case has emerged in Australia for a CBDC”. The Monetary Authority of Singapore (MAS)’s managing director, Ravi Menon, similarly described “no strong case” for the imminent launch of Singaporean CBDC in a speech earlier this month – but also that MAS would nonetheless be building the infrastructure and ‘technical competencies’ for a potential digital Singaporean dollar.
‘Could safeguard confidence in national monies’
Richards, who was delivering his final speech before retiring from the RBA, said the authority “acknowledges the argument being made internationally that with all the innovation that is occurring in the payments area, provision of a new digital form of central bank money for general purpose use could be important for safeguarding confidence in national monies and the role of fiat currencies at the heart of monetary, financial and payment systems”.
He said that “there appears to be growing recognition that the network effects inherent in payments could result in large, ‘walled-garden’ technology companies or payment schemes coming to dominate the payments industry”.
“So,” he explained, “there could be potential benefits arising from central banks issuing general-purpose CBDCs that might be used by different types of entities, including non-bank payment providers, to offer transfers between digital wallets of households and merchants. By introducing CBDCs, central banks would not be getting into the retail payments business, but they would be providing a riskless and interoperable form of digital money that could potentially stimulate competition between different private-sector service providers”.
But the primary reason for the RBA’s caution on CBDC 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,” Richards continued in his speech, which was delivered on 18 November to the Australian Corporate Treasury Association. “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.
Digital finance consortium’s federal backing
The Digital Finance CRC, which describes itself as a ‘cross-industry multi-disciplinary consortium’, brings together organisations including established authorities such as the RBA, fintech companies and academics. The A$60m government backing was announced in June, with the DFCRC’s chief executive designate, Andreas Furche, stating that this handed the DFCRC “the mandate and financial certainty it needs to undertake effective long-term research and form deep partnerships with industry to help Australia become a global leader in establishing a fully digitised economy”.
Richards’ speech did not further elaborate on the RBA’s retail CBDC aspirations, aside from stating that “given the possibility that the balance could shift towards a case for issuance of retail CBDCs, the [RBA] has been stepping up its CBDC research” and that CBDC research was a “key element” of ‘Supporting the evolution of payments’ – one of six focus areas of the RBA’s strategic plan.
On the wholeside side, the RBA teamed up with Commonwealth Bank, National Australia Bank, Perpetual and US-based ConsenSys just over a year ago to explore whether there could be a future role for a wholesale CBDC in Australia’s payments system. This project extended an earlier proof-of-concept in various ways, including the incorporation of a tokenised financial asset in the form of a tokenised syndicated loan, and exploring the implications of delivery-versus-payment (DVP) settlement on a distributed ledger technology (DLT) platform. Findings were originally due to be published in the first half of this year.
Richards pointed out in his speech that the RBA is also involved in ‘Project Dunbar’ together with the Bank for International Settlements (BIS) Innovation Hub, MAS and the central banks of Malaysia and South Africa. This international collaboration aims to develop prototype shared platforms for cross-border transactions using CBDCs of many different jurisdictions.
Crypto data ‘somewhat implausible’ amid ‘hype’
Richards’ speech also reflected on so-called stablecoins and crypto-currencies.
The Financial Stability Board (FSB) presented a progress report on ‘Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements’ last month. It stated that ‘while the current generation so-called stablecoins are not being used for mainstream payments on a significant scale, vulnerabilities in this space have continued to grow over the course of 2020-21’.
In Australia, Richards said, the RBA and other members of the Council of Financial Regulators (CFR), as well as the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Australian Competition & Consumer Commission (ACCC), are involved in a working group examining the appropriate regulatory framework for crypto-assets, including stablecoins.
He said he was sceptical about some data on the extent of crypto-currency holdings among the general population. “Some surveys have claimed that around 20 per cent of the Australian population hold cryptocurrencies, and one claimed that Dogecoin alone was held by five per cent of Australians,” he told the audience. “I must say that I find these statistics somewhat implausible. I cannot help thinking that the online surveys they are based on might be unrepresentative of the population.”
“While it is hard to point to any firmer evidence on cryptocurrency holdings by Australians, some of the estimates out there are extremely surprising and may be symptomatic of the significant amount of hype and misinformation in this area,” he said.
*** The RBA announced today (24 November) that Ellis Connolly will succeed Richards, starting on 20 December. Connolly, who has been with the RBA for two decades, is promoted from the position of deputy head – financial markets infrastructure in the payments policy department and will report to assistant governor (financial system) Michele Bullock.
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‘Singapore preps CBDC tech despite ‘no strong case’ for digital currency’ – our news story (9 November 2021) on the Monetary of Singapore’s latest CBDC thinking, as presented by the authoring’s managing director, Ravi Menon, during the Singapore FinTech Festival
‘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