The Reserve Bank of Australia is keenly observing the development of digital currencies and has acknowledged the vast opportunities that the blockchain offers the financial sector.
Speaking at a House of Representatives committee on taxation in Canberra, RBA head of payments policy Tony Richards revealed further details of the New Payments Platform, which will be launched early next year.
Mr Richards said that while the use of digital currencies like bitcoin for payments remained “relatively limited” in Australia, they offer a wealth of potential in the finance sector.
“While the longer-term prospects for private digital currencies are unclear, the Bank has previously noted that the distributed ledger and blockchain technologies underlying them have potential for widespread use in the financial sector and many other parts of the economy,” Mr Richards said.
“The greatest potential is likely to be in sectors where workflows involve lots of different parties with no trusted central equity, and where current practices are quite inefficient,” he said.
“Some frequently suggested financial sector use cases include correspondent banking and remittances, as well as trade financing.”
It comes as a group of Australian FinTech startups continue to lobby the RBA and Treasury to create a digital version of the Australian dollar – the digital Australian dollar, or DAD.
Coordinated by FinTech Australia, the three companies presented use cases to the RBA in August, focused on how a national digital currency would create legitimacy and trust around their services.
The use cases focused on foreign exchange, agricultural supply chain payments and lending, and were discussed at a Payment Systems Board meeting in August. While the RBA has not officially backed the concept, it has confirmed that it is closely observing the developments.
“Members agreed that the bank should continue to consider the technical and policy issues associated with digital cash,” the RBA said in a statement.
The government and ASIC have made a number of movements this year to regulate digital currencies and stamp out illegal activities using cryptocurrencies.
Earlier this year the government moved to remove the double taxation of digital currencies, and has also put forward legislation to bring them under the remit of Austrac, so digital currencies would face the same reporting and compliance obligations as the big banks.
ASIC has also issued guidelines on how it plans to deal with Initial Coin Offerings, a new form of fundraising for tech startups based on the blockchain.
ASIC issued a paper outlining how ICOs fall into existing regulations based on the form of the “token” that has offered, and saw the regulator take a light-handed approach to the fundraising method.
In his statement to the House committee, Mr Richards acknowledged the rise in popularity of cryptocurrencies and difficulties with regulating them.
“There have been substantial increases in the prices of crypto-currencies like bitcoin and ether over the past year,” he said.
Most of this seems to relate to speculative demand and in particular the use of digital currencies as the means of participation in Initial Coin Offerings.”
“Cryptocurrencies can serve as a means of payment in the illicit economy. Accordingly, their use may have some implications for tax authorities and they raise more significant issues for authorities tasked with crime prevention and detection.
“The distributed and cross-border nature of digital currencies like bitcoin means that regulation of the core protocols of these systems is unlikely to be effective.”
During his address to the committee, Mr Richards also outlined the development of the New Payments Platform, which has been in the works for the past few years.
The new platform would facilitate near real-time transactions between Australians using an email address or phone number rather than a BSB and account number.
RBA has built the “underlying settlements architecture” – the Fast Settlement Service – for the platform. Mr Richards confirmed the platform is now in the final stages of testing, and will be launched early next year.
“The NPP has been a significant project for the payments industry. The NPP has been designed as a platform for innovation that will benefit end-users of the payments system – households, businesses and government entities,” he said.
The new platform would also allow up to 280 characters to be included in the payments description.