On August 23, the Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC) unveiled their findings in a report detailing the implications of a central bank digital currency (CBDC).
Notably, this investigation involved the RBA issuing a pilot CBDC to selected industry participants within a secure environment, marking a departure from previous theoretical experiments. This CBDC was not just a concept but a legitimate claim on the central bank, enabling a deep dive into the legal, regulatory, technical, and operational facets of CBDC issuance, thus guiding future policy decisions.
The report outlined a multitude of submissions from industry participants, each presenting unique CBDC use cases that may offer substantial benefits to Australian households and businesses.
Among the key themes that emerged in the submissions was the potential of CBDCs to streamline payments. The report found that programmable, tokenized CBDCs could facilitate intricate payment arrangements that conventional systems struggle to support. For instance, leveraging smart contracts could trigger automatic payments using the CBDC whenever predefined conditions are met. This would eliminate costly reconciliation processes and reduce failed transaction risks.
Moreover, the research underscored the CBDC’s potential to spur innovation in financial and other markets. Industry representatives expressed considerable interest in utilizing distributed ledger technology (DLT) platforms for asset tokenization, with the pilot CBDC employed in the ‘atomic’ settlement of transactions. This exploration extended to traditional debt securities markets, which typically experience settlement times measured in days and less liquid assets such as Australian carbon credit units and NSW biodiversity credits.
The CBDC could also catalyze innovation in private digital money by promoting new forms of interoperable, uniform private digital money, such as tokenized bank deposits and high-quality asset-backed stablecoins. CBDCs could provide an alternative to central bank-held settlement balances used in commercial bank transactions, fostering competition in the digital money market.
Lastly, the findings suggested that CBDCs could reinforce resilience and inclusivity in the digital economy. Some submissions indicated that CBDCs could bolster the system’s robustness by offering alternate payment methods, like offline electronic payments, especially during power or internet outages. Such a feature could be particularly beneficial to specific community sectors that may find it difficult to access traditional banking services, including travelers, foreign students, and victims of domestic violence.
The project revealed heightened interest from the industry in the development of tokenized asset markets facilitated by a CBDC, which could serve as a catalyst for private sector innovation, including the development of new forms of privately-issued payment instruments and infrastructure.
However, the exploration of CBDCs has also raised a myriad of questions, spotlighting the need for further understanding of a range of legal, regulatory, technical, and operational issues. For instance, the project demonstrated the need for a deeper analysis of the legal foundation of a CBDC, including the legal grounds for its issuance and legal status. Additionally, the project highlighted potential challenges related to the technical design of CBDCs and their integration with use case applications.