RBA not convinced of strong case for central bank digital currency
Reserve Bank of Australia staff have not been convinced to date that a strong policy case has emerged in Australia for a central bank digital currency (CBDC), Tony Richards, Head of Payments Policy said today.
The primary reason has been that Australia’s existing electronic payments system already provides households and businesses with a wide range of safe, convenient and low-cost payment services. The New Payments Platform (NPP) was a major upgrade to the payments system, allowing real-time, data-rich, easily addressed account-to-account payments that can be made on a 24/7 basis. 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.
However, the Bank 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.
In addition, 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 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.
Given the possibility that the balance could shift towards a case for issuance of retail CBDCs, the Bank has been stepping up its CBDC research.
As regards wholesale CBDC, the Bank has been conducting research on the technological and policy implications for several years, based on a view that it was more likely that a case for issuance could emerge. The first project, done in 2019 in conjunction with the Bank’s in-house Innovation Lab, developed a proof-of-concept of a DLT-based interbank payment system using a tokenised form of CBDC backed by exchange settlement account balances held at the Bank.
More recently, the Bank has been working on Project Atom, which has been conducted with four external parties. This has extended the earlier proof-of-concept in a number of ways, including to incorporate a tokenised financial asset in the form of a tokenised syndicated loan, and to explore the implications of DVP settlement on a DLT platform.
Currently, RBA staff are working on Project Dunbar, together with the BIS Innovation Hub and the central banks of Malaysia, Singapore and South Africa. This project aims to develop prototype shared platforms for cross-border transactions using CBDCs of many different jurisdictions. Such platforms could allow financial institutions to transact directly with each other in CBDCs, eliminating the need for intermediaries and potentially improving the speed, cost and transparency of wholesale cross-border transactions.