Australia to Test the Digital Currency Waters
Posted by Colin Lambert. Last updated: August 10, 2022
The Reserve Bank of Australia (RBA), along with the Digital Finance Cooperative Research Centre (DFCRC) is to commence work on a research project to explore use cases for a central bank digital currency (CBDC) in Australia.
Considerable research has been undertaken by central banks, including the Reserve Bank, which took part in Project Dunbar earlier this year, into the feasibility and possible technical design of CBDC, in particular exploring the potential use of new technologies such as distributed ledger technology. The RBA says a question that has received less attention to date, especially in countries like Australia that already have relatively modern and well-functioning payment and settlement systems, is the use cases for a CBDC and the potential economic benefits of introducing one.
The central bank says the project will help address this gap by focusing on innovative use cases and business models that could be supported by the issuance of a CBDC. The project will also be an opportunity to further understanding of some of the technological, legal and regulatory considerations associated with a CBDC.
The project, which is expected to take about a year to complete, will involve the development of a limited-scale CBDC pilot that will operate in a ring-fenced environment for a period of time and is intended to involve a pilot CBDC that is a real claim on the Reserve Bank.
The RBA says that interested industry participants will be invited to develop specific use cases that demonstrate how a CBDC could be used to provide innovative and value-added payment and settlement services to households and businesses. The RBA and the DFCRC will select a range of different use cases to participate in the pilot, based on their potential to provide insights into the possible benefits of a CBDC.
A report on the findings from the project, including an assessment of the various use cases developed, will be published at the conclusion. The findings will contribute to ongoing research into the desirability and feasibility of a CBDC in Australia, the RBA says.
The Australian Treasury is participating as a member of the steering committee for the project, as part of its joint work with the Reserve Bank on exploring the viability of a CBDC in Australia. A paper will be published in the next few months that will explain the objectives and approach of the project in more detail and how industry participants will be able to engage.
“This project is an important next step in our research on CBDC,” says Michele Bullock, deputy governor of the RBA. “We are looking forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia.”
Dr Andreas Furche, CEO of the DFCRC, adds, “CBDC is no longer a question of technological feasibility. The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximise those benefits.”