Australia’s central bank has delayed making any decision on a central bank digital currency (CBDC) for “some years” after conducting a year-long research project.
The Reserve Bank of Australia (RBA) concluded that “a CBDC has the potential to support increased efficiency and resilience in some areas of the payments system, though more research is required” and said that “a CBDC could facilitate the development of new forms of privately-issued payment instruments and infrastructure, including stablecoins that are fully backed by CBDC”.
Australian payments system
But, it says: “the project raised a number of questions and revealed various legal, regulatory, technical and operational issues that warrant further consideration as part of future research on CBDC in Australia”. And so it concludes: “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”.
The research was carried out by the bank alongside the Digital Finance Cooperative Research centre (DFCRC), a A$180m ($124.3m) program funded by industry, universities and central government.
A limited-scale pilot CBDC was issued by the RBA as part of the project. The pilot was taken up by selected users to show how a CBDC could be used to provide payment and settlement services to households and businesses. The pilot was issued in a ring-fenced environment, but also as a real legal claim on the RBA, rather than just a proof-of-concept.
Business and government
The project considered around 110 use-case submissions for inclusions, eventually settling on 16 to participate in the pilot, which was staged between March and July 2023. A further 60 submissions from entities seeking to contribute views were considered. A further 50 companies and large government departments were also consulted.
Four key themes for potential CBDC use emerged;
- enabling smarter payments;
- supporting innovation in financial and other asset markets;
- promoting private digital money innovation;
- enhancing inclusion and resilience in the digital economy.
Questions raised by the project included the need for more analysis of the legal basis of a CBDC, and whether existing regulatory frameworks were sufficient to deal with new types of business models and the changing nature of risk. Challenges associated with the technical integration of use-case applications within a CBDC platform were also identified as needed significantly more research.
“The project yielded valuable insights into how a CBDC, alongside other innovations in digital money, could potentially unlock benefits for the Australian financial system.”
Brad Jones, Assistant Governor, RBA
Brad Jones, the RBA’s Assistant Governor (Financial System) said: “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 … The key findings from the project will help to shape the next phase of the RBA’s research program 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”.
Dr Andreas Furche, CEO of the DFCRC, said: “The report underscores that innovation in finance is a continuous journey … 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”.
The full report is available from the RBA website.