Do we need a digital AU dollar?

James Riley
Editorial Director

A number of local FinTech startups have lobbied the Reserve Bank of Australia to create a cryptocurrency version of the Australian dollar.

Three use cases from Australian FinTechs were presented to the RBA and Treasury’s FinTech Advisory Group in August, with an aim of guiding the debate on the issue and driving action. The efforts were coordinated by FinTech Australia.

The Digital Australian Dollar (DAD) would be a digital version of the Australian dollar of sort that can be transacted on the blockchain but anchored to the fiat currency, rather than something often seen as volatile like bitcoin or other digital currencies.

Chris Baxter: This IP attorney and blockchain expert sees benefits in a digital Aussie dollar

It would be a form of “programmable” money run on the blockchain, with smart contracts attached to parcels of digital representations of traditional Australian currency, FinTech Australia CEO Danielle Szetho said.

“The digital Australian dollar (DAD) would be a huge step to grow our vibrant blockchain and digital currencies industry. Plenty of exploration is happening around this topic around the world, and we have all the right ingredients to explore it for a broad variety of use cases,” Ms Szetho said.

“Having key stakeholders like the RBA involved in further explorations of an Australian digital currency will help build trust and usage of cryptocurrencies, but at the same time will ensure we do not undermine Australia’s currency stability and sound monetary policy.”

The proposals were discussed at a Payment Systems Board meeting on 18 August, but details of the pitches have only just been revealed. In a media release following the meeting, the RBA acknowledging it had received the use cases from the FinTechs.

“The board discussed the role that digital currencies could potentially play in the payments system. It noted recent international work on whether there might be a demand for ‘digital cash’ issued by central banks and, if so, what form it might take,” an RBA spokesperson said.

Members agreed that the bank should continue to consider the technical and policy issues associated with digital cash.”

FinTech Australia is understood to be in ongoing conversations with the RBA, but it is yet to endorse the idea of a government-backed digital currency.

The FinTechs presented three use cases focusing on different sectors: foreign exchange, agricultural supply chain payments and lending. Each detailed how the FinTech community is currently utilising digital currencies and the blockchain, but are met with challenges due to the lack of a nationally-recognised and government-backed digital currency.

The argument centres on how the DAD would increase trust and provide legitimacy to the digital currency, and remove it from the volatility commonly seen with bitcoin, the most prominent cryptocurrency in the world.

The foreign exchange use case came from FlashFX, a FinTech which is currently the only licensed digital currency business in Australia. The company facilitates cross-border payments on the blockchain, and issues an Australian dollar equivalent in cryptocurrency.

But its pitch to the RBA said this does not represent a government-endorsed currency, and lacks the trust and legitimacy this offers.

It also argues that the potential for several different, non-government digital currencies with different values will be shown on the platform, leading to confusion among users.

FlashFX said a government endorsed digital Australian dollar has the “potential to lead to increased trust and certainty, particularly to grow the digital currency marketplace”.

The agricultural supply chain payments pitch was presented by AgriDigital, a commodity management platform using blockchain technology to facilitate transactions between farmers and buyers.

The submission said that existing, non-state based cryptocurrencies are too volatile and costly for many businesses, and lack trust and interoperability with other financial institutions.

“As a result, payments must happen in fiat currency outside of the blockchain process. This is both slower and more expensive than what is offered by digital currencies,” it said.

AgriDigital argued for a centrally issued DAD backed by the Australian dollar, which would enable payments in real-time, anytime, and also provide opportunities for blockchain technologies to develop.

“Australian agriculture is a great test market for blockchain technologies and the development of a digital dollar would allow Australian agtech to lead the development of digital agricultural supply chains,” the submission said.

The final submission was from Othera, a blockchain platform that digitised loans, and focused on the lending space.

The company is currently forced to integrate back into the “legacy payment rails of the banking system” in order to facilitate and process repayments from borrowers. This is a “slow and expensive process” that would be avoided with the DAD, it argued.

“Not having a digital Australian dollar means that Othera’s lending customers cannot list their digital assets on an external exchange and are limited to their private exchange with limited liquidity,” the submission said.

“If Othera had access to a digital AUD, it would be able to auto-process repayments to any token holder on any exchange instantly, and would also be able to trace the beneficiaries of all funds with 100 per cent accuracy.”

While the idea of a government-backed cryptocurrency, a form of currency traditionally flying under the radar of regulation and used in criminal activity, may seem novel and unlikely, but several other jurisdictions are also investigating the possibility.

A consortium of Japanese banks, with the backing of the nation’s central bank and regulators, are currently working on a digital currency to be launched before the 2020 Tokyo Olympics. The J-Coin will work on a one-to-one exchange rate with the Japanese Yen.

A group of big name banks is also investigating the possibility of developing a blockchain currency to settle international payments, including the likes of UBS, BNY Mellon and Deutsche Bank.

Estonia has also signalled an intent to launch the Estcoin, a government-backed cryptocurrency.

Baxter IP managing director and blockchain expert Chris Baxter said a government-backed cryptocurrency has a wide range of potential benefits, including moving towards a cashless economy, removing the waiting time on transactions, and eliminating transaction fees.

“A DAD coin would be highly beneficial to the Australian economy. [It would] help position Australia as a leader in the wave of new blockchain and cryptocurrency-associated technologies which will soon be ubiquitous,” Mr Baxter told

Proposals differ on whether the DAD should be directly tethered to the AUD. Mr Baxter said that if it isn’t, it could help protect Australia from inflation.

While this is an area of huge potential opportunities, in the short-term the government should instead be looking to the patent system to help support the burgeoning blockchain sector in Australia, he said.

“Patent attorneys are seeing a growing number of FinTech patent applications as local innovators seek to protect their new blockchain or alternative enabled technologies,” Mr Baxter said.

“It’s important that the Australian Government seek to nurture this small but flourishing industry and to provide an intellectual property system offering improved protection for technological advances in non-traditional industries like FinTech. Loosening restrictions around software patenting is a key first step,” he said.

The idea of a national cryptocurrency has also been discussed with the Parliamentary Friends of Blockchain, a bipartisan group formed earlier this year to support the local sector. Spearheaded by Labor senator Sam Dastyari and Liberal senator Jane Hume, the group held a meeting with more than 100 digital currency businesses and advocates, along with a number of politicians, for the first time in August.

While it hasn’t commented on the possibilities of the DAD, the federal government has made a number of legislative movements this year to legitimise the blockchain and digital currency.

Earlier this year it removed the double taxation of digital currencies, which was earlier flagged in the federal budget and also put forward legislation that would bring digital currency exchanges under the remit of Austrac.

The draft amendments would impose the same reporting obligations on these companies as the big banks, and would be the first time the government has moved to regulate this space, marking a “big step forward” for the local sector.

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