RBA examining digital wholesale currency potential

The RBA has begun exploring the implications of a wholesale form of digital currency using distributed ledger technology.

RBA assistant governor Michele Bullock. Picture: Getty Images

The Reserve Bank is exploring the potential use and implications of a wholesale form of central bank digital currency (CBDC) using distributed ledger technology, as part of its ongoing research on the subject.

In a statement, the RBA said it has partnered with Commonwealth Bank, National Australia Bank, Perpetual and a blockchain technology company ConsenSys Software on a collaborative project.

The project will involve the development of a “proof-of-concept” for the issuance of a “tokenised” form of CBDC that can be used by wholesale market participants for the funding, settlement and repayment of a tokenised syndicated loan on an Ethereum-based distributed ledger platform.

The proof of concept will be used to explore the implications of “atomic” delivery-versus-payment settlement on a distributed ledger platform as well as other potential programmability and automation features of tokenised central bank digital currency and financial assets.

The announcement comes after a group of seven major central banks including the US Federal Reserve, the Bank of England, the Swiss National Bank and the Bank of Japan – together with the Bank for International Settlements - outlined this month how a digital currency could look, while the People’s Bank of China is already piloting a digital version of the renminbi.

The report recommended central bank digital currencies should complement but not replace cash and other forms of legal tender, and noted that they must not hurt monetary and financial stability.

“With this project we are aiming to explore the implications of a central bank digital currency for efficiency, risk management and innovation in wholesale financial market transactions,” said RBA assistant governor Michele Bullock.

Ms Bullock said the case for using a central bank digital currency in wholesale markets “remains an open question” and that the bank is collaborating with its industry partners to “explore if there is a future role for a wholesale central bank digital currency in the Australian payments system”.

The project is expected to be completed around the end of 2020 and the parties intend to publish a report on the project and its main findings during the first half of 2021.