RBA to Prioritise Wholesale CBDC

A joint report published by the Reserve Bank of Australia (RBA) and the Australian Treasury, says that while the two authorities don’t see a strong case for a retail central bank digital currency (CBDC), the RBA is planning to prioritise its work on a wholesale CBDC (wCBDC) to enhance market functioning.

The report notes that a wCBDC could allow for greater functionality than is possible in today’s infrastructure and that the benefits of such a development are more tangible than those for a retail digital currency. “Potential benefits could also be realised in a minimally disruptive way in a wholesale setting, building on key features of the monetary system that have served the Australian financial system well for decades,” the report states.

The paper argues the most compelling proposition in favour of wCBDCs relates to increasing innovation and efficiency through tokenisation, adding that this reflects the large size of existing markets that could conceivably be tokenised, and the potential for new markets to emerge in unison with tokenised assets and money.

Key policy questions relate to how best to support tokenisation in wholesale markets, including the division of roles across the public and private sectors, the report notes, but it also suggests that one path, which incorporates a key role for the public sector, could include the issuance of a wholesale CBDC or upgrading existing infrastructure to support tokenised settlement.

A second path, with private sector-led innovations in digital money, notably stablecoins, and new forms of ledger development, might also yield considerable benefits in supporting tokenised markets, it adds, also pointing out that a third path could comprise a hybrid of official and private sector innovations in digital money and supporting infrastructure.

With the RBA prioritising wCBDC development, the paper says the future work programme of the central bank, along with the Treasury, will see work stepped up on experimental project work, wider engagement with the industry, academia and peer central banks, as well as an enhanced regulatory landscape to support ‘sandbox’ work, with greater clarity of the regulatory handling of digital assets more generally.

“The RBA is making a strategic commitment to prioritise its work agenda on wholesale digital money and infrastructure – including wholesale CBDC,” says Brad Jones, assistant governor (financial system) at the central bank. “At the present time, we assess the potential benefits as more promising, and the challenges less problematic, for wholesale CBDC compared to a retail CBDC.

“Next month, we will launch the public phase of Project Acacia, which will explore opportunities to uplift the efficiency, transparency and resilience of wholesale markets through tokenisation and new settlement infrastructure,” he continues. “This initiative will form part of a larger effort to step up our engagement with industry and other stakeholders on the question of how our monetary arrangements could better support the Australian economy in the digital age.”