RBA to focus on wholesale digital currency
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The news: The Reserve Bank of Australia (RBA) will move ahead with work on a central bank digital currency (CBDC) but only a wholesale version, saying a retail one was of little benefit in Australia given established payment options.
The context: In a speech at the Intersekt conference in Melbourne today, RBA assistant governor, financial system, Brad Jones said the potential benefits of a retail CBDC appeared "modest or uncertain at the present time relative to the challenges it would introduce".
Jones said the RBA had three key messages from its work on CBDCs. The first was the commitment to prioritise wholesale digital money and infrastructure; the second committing to a three year applied research program on the future of digital money in Australia; and the third, if a public policy case emerged for a retail CBDC, the government would be the ultimate decision authority as it would require legislative change.
The RBA considers a wholesale digital currency more an evolution of existing arrangements whereas a retail CBDC would be revolutionary. Moreover, stronger use cases only exist in lesser developed countries or countries where the payments infrastructure or currency security is not great which is not the case in Australia.
The RBA has worked in conjunction with commercial banks and the Digital Finance Cooperative Research Centre on a series of pilots and research projects into the CBDCs. Results of that work released a year ago informed the latest position.
One of the risks identified by the RBA with a retail currency was its potential to amplify a run on banks if depositors suddenly sought the safety of the central bank in a time of stress and pulled money from commercial banks.
With a wholesale currency, earlier work had established there was potential for much greater efficiency and security, notably with “atomic settlement” where clearing and settlement take place simultaneously ensuring a transaction is immediately final.
Jones noted that if the tokenisation of assets led to a small share of benefits on earlier innovation in wholesale markets, then the aggregate cost savings could be substantial to investors and issues in the Australian financial markets. However, he cautioned that for all of its promises, tokenisation was not without challenges.
Jones also announced a three year digital money work plan for the RBA and Treasury.
What they said: “The role that a wholesale CBDC and other forms of digital money and infrastructure upgrades could play in enhancing the functioning of our wholesale markets will be the principal focus of our future work program,” Jones said.
“... Our most immediate priority is to launch the public phase of Project Acacia (which) aims to build on the lessons from our CBDC pilot last year by focussing on opportunities to uplift the efficiency, transparency and resilience of wholesale markets through tokenised money and new settlement infrastructure.” he said.
“Subsequent phases of the project may well involve cross-border applications with regional central banks. In October, the RBA, alongside our research partners at the Digital Finance Cooperative Research Centre, will publish a consultation paper inviting industry engagement.”
The source: RBA
