Australia is a long way off issuing a Central Bank Digital Currency, according to a final report on pilot projects initiated by the Reserve Bank of Australia and the Digital Finance Cooperative Research Centre.
A Central Bank Digital Currency (CBDC) is described in the report, released on Wednesday, as “a new digital form of money, denominated in a national currency, that would be issued as a direct liability of the central bank”. In the pilot, it was based on Ethereum blockchain technology.
The report concludes that “it is likely that any serious policy consideration of issuing a CBDC in Australia is still some years away”. However, it noted that work in other advanced economies is “generally still in an exploratory stage”.
“Many of the issues identified in the project and in earlier research will require a program of research that is likely to unfold over a number of years,” the report reads.
In March, the Reserve Bank of Australia (RBA) announced the CBDC pilot projects in collaboration with the Digital Finance Cooperative Research Centre, along with local FinTechs and banks.
There were 16 pilot projects undertaken with more than 140 use case submissions initially proposed. The pilot projects were more than a proof-of-concept, with the CBDCs representing real legal claims on the Reserve Bank of Australia (RBA).
The report notes that a CBDC could foster the development of new privately-issued payment instruments and infrastructure, such as stablecoins fully backed by CBDC. As such, the report states that the coin could be a “an enabling complement to, rather than substitute for, private sector innovation”.
It states that the project results are indicative that the CBDC could increase efficiency, resilience, and inclusion in some areas of the payments system.
For example, ANZ Bank successfully demonstrated the use of the pilot CBDC for offline digital payments for some students making purchases at businesses on the campuses of RMIT University and Southern Cross University.
A GST automation system was also demonstrated by Commonwealth Bank and Intuit, which could reduce the compliance burden on businesses by reducing the need to lodge quarterly Business Activity Statements. A GST invoice was automatically calculated and paid in pilot CBDC to a holding account to be paid to the Australian Taxation Office while the remainder was automatically retuned to the business.
Local FinTechs Unizon and Zerocap successfully demonstrated a tokenised invoice. The pilot CBDC facilitated “programmable payments that automatically split and forwarded the corresponding value to multiple receivers on invoice payment, eliminating counterparty risk”.
Throughout the work, a number of “legal, regulatory, technical and operational issues” were revealed during the work which will require further research, the report notes. Further analysis of the legal basis of issuance and consideration of regulatory reform to accommodate new business models that may arise would be required.
An assessment of CBDC technology and technical design of a CBDC platform was not the core focus of the projects. As such, the report flagged a number of technical considerations that should be studied further including scalability, security, and resilience.
In June, the federal Treasury and the Reserve Bank of Australia announced it would release a paper in mid-2024 intended as a stocktake of work on Central Bank Digital Currencies (CBDC) in Australia so far. It will also include a forward workplan and outline the government’s view on the future of digital money in Australia.
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