Home Digital Currencies Australian central bank explores wholesale digital currency

Australian central bank explores wholesale digital currency

Sydney: the RBA is partnering Commonwealth Bank, National Australia Bank, Perpetual and US-based ConsenSys Software for its CBDC research | Credit: yeonhwa510; Pixabay

The Reserve Bank of Australia (RBA) has become the latest major central bank to issue an update on its research into a potential central bank digital currency (CBDC).

The RBA announced that it has partnered two of the country’s biggest banks, as well as an Australian investment advisory firm and a US-headquartered blockchain technology company, 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.

The project is exploring the potential implications of a wholesale CBDC using distributed ledger technology (DLT) – a system by which transactions and their details are recorded simultaneously in multiple places, as opposed to centrally.

The research involves the development of a proof-of-concept for the issuance of a tokenised form of CBDC that can be used by wholesale market participants for the funding, settlement and repayment of a tokenised syndicated loan on an Ethereum-based DLT platform. A syndicated loan is financing offered by a group of lenders (a syndicate) to a single borrower. Ethereum is an open-source, blockchain-based, decentralised software platform.

Efficiency, risk and innovation implications being explored

The research, described as part of ‘ongoing’ RBA research on a wholesale CBDC, is expected to be completed in the next couple of months. The parties plan to publish a report during the first half of 2021.

The four companies partnering the Sydney-headquartered RBA are Commonwealth Bank and National Australia Bank, Perpetual and US-based ConsenSys Software.

“With this project we are aiming to explore the implications of a CBDC for efficiency, risk management and innovation in wholesale financial market transactions,” said the Reserve Bank’s assistant governor (financial system) Michele Bullock.

“While the case for the use of a CBDC in these markets remains an open question, we are pleased to be collaborating with industry partners to explore if there is a future role for a wholesale CBDC in the Australian payments system,” Bullock added.

CBDC developments keep coming

The RBA’s update comes amid a flow of similar CBDC developments from central banks across the globe. China is seen as frontrunner among leading economies to launch a CBDC (a ‘digital yuan’), while the European Central Bank (ECB) is running its own consultation on a potential ‘digital euro’. Global Government Fintech reported last week that the Bank of Russia had launched a public consultation on a CBDC ahead of a possible ‘digital ruble’ pilot before the end of 2021.

Meanwhile the Bank of Canada’s recently promoted new governor, Tiff Macklem, said last week that his central bank saw no compelling need for a digital currency “right now” and that a “globally co-ordinated” approach to CBDCs was needed, Reuters reported.

But Macklem told the news agency in an interview: “If another country has one and we don’t, that could certainly create some problems. So we want to make sure we’re ready. Currencies move across borders, and so we certainly wouldn’t want to be surprised by some other country. It will be important for us to share information on what each of us is doing, is planning on and on the timeline that we might do it on.”

The Bank of Canada has been researching CBDCs with the Bank of England, Bank of Japan, US Federal Reserve, Sveriges Riksbank (Sweden) and Swiss National Bank, as well as the ECB and Bank for International Settlements (BIS), in a specially formed grouping. The central banks announced they were pooling their brainpower on CBDCs almost a year ago and recently published a report, Central bank digital currencies: foundational principles and core features, highlighting three ‘key principles’ for a CBDC.