The RBA project will explore a potential wholesale form of a central bank digital currency (CBDC) that would use distributed ledger technology (DLT), as part of ongoing research.
CBDCs are designed to be equivalent to a country’s paper currency and subject to the same government-backed safeguards. Central banks can issue currency as a digital representation of a country’s fiat currency, in addition to printing money.
The RBA project will involve the development of a proof of concept (POC) for the issuance of a tokenized form of CBDC which can be used by wholesale market participants for the financing, settlement and redemption of a syndicated loan tokenized on an Ethereum-based DLT. platform.
The proof of concept will be used to explore the implications of delivery versus payment settlement on a DLT platform as well as other potential programmability and automation features of a tokenized digital currency and financial assets.
The move follows China’s recent launch of a digital yuan and other central banks, signaling a rethink around digital currencies. Mastercard also rolled out a proprietary virtual testing environment in September for central banks to evaluate digital currencies.
However, China’s digital currency has not used distributed lightweight technology – unlike the RBA’s potential new wholesale CBDC and cryptocurrencies like bitcoin.
Michele Bullock, deputy governor for the financial system at the Reserve Bank, said her organization aimed to explore the implications of a currency for efficiency, risk management and innovation in financial market transactions.
“While the use of a CBDC in these markets remains an open question, we are happy to collaborate with industry partners to explore whether there is a future role for a wholesale CBDC in the Australian payments system,” he said. said Ms. Bullock.
But Jonathon Miller, Australian managing director of global digital currency exchange Kraken, said the RBA’s decision was a complete step back from its previous stance that a CBDC would present no benefit to Australian consumers.
“Any Australian who has tried to send AUD overseas will tell you the opposite is that Australia has one of the highest remittance costs in the OECD,” Mr Miller said .
“We see vast potential for a wholesale central bank digital currency and, in particular, this technology could bring great benefits to our neighboring Pacific jurisdictions that rely heavily on AUD remittances.”
He added that China’s trial of a digital yuan serves as an example of the popularity of CBDCs and how they could work.
“This week alone, more than 4 million transactions totaling more than 2 billion yuan ($299 million) were made using the currency, according to Yi Gang, governor of the People’s Bank of China,” Miller said. .
“COVID-19 has strengthened the case for widespread adoption of CBDCs and accelerated the need for contactless banking and payments – a trend that is clearly visible in Australia, now China and neighboring jurisdictions. the Asia-Pacific region.”
The RBA project is expected to be completed towards the end of the year. The parties involved intend to publish a report with the main findings during the first half of 2021.
