The Reserve Bank of Australia today announced a partnership with Commonwealth Bank, National Australia Bank, Perpetual and blockchain technology company ConsenSys Software, on a collaborative project to explore the potential use and implications of a wholesale form of central bank digital currency (CBDC) using distributed ledger technology (DLT). This is part of ongoing research at the Reserve Bank on wholesale CBDC.

The project will involve the development of a proof-of-concept (POC) 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. The POC will be used to explore the implications of ‘atomic’ delivery-versus-payment settlement on a DLT platform as well as other potential programmability and automation features of tokenised CBDC and financial assets.

The project is expected to be completed around the end of 2020 and the parties intend to publish a report on the project and its main findings during the first half of 2021.

Let’s recall that, in October 2020, a group of seven central banks together with the Bank for International Settlements (BIS) published a report on central bank digital currencies (CBDCs), highlighting the benefits and risks of such a development.

The potential financial stability implications of CBDC need to be considered carefully, the report stressed. There are two main concerns:

• in times of financial crisis, the existence of a CBDC could enable larger and faster bank runs;
• and more generally, that a shift from retail deposits into CBDC (“disintermediation”) could lead banks to rely on more expensive and less stable sources of funding.

The report explains that these risks are inherent in making a safe central bank money available to the public (a central purpose of a CBDC) and are already present with the existence of cash, although a CBDC could bring new structural challenges. Before launching a CBDC, a central bank would need to make an informed judgment that risks were identified and would remain manageable.