RBA launches digital currency project for payment and settlement

The central bank is preparing for what is expected to be the next transformation of financial markets.

The Reserve Bank is kicking off a new project to see if a central bank digital currency can be used for value-added payment and settlement services for households and businesses.

The project, which is expected to take about a year, will involve a collaboration with the Digital Finance Cooperative Research Centre (DFCRC) – a 10-year, $180m research program by industry partners, universities and the federal government.

RBA deputy governor Michelle Bullock said the work was an “important next step” in the central bank’s research on CBDCs.

“We are looking forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia,” Ms Bullock said.

The RBA is an industry partner of the DFCRC, which was established to exploit the opportunities arising from the next transformation of financial markets.

This is expected to be the digitisation of assets that can be traded and exchanged directly in real-time on digital platforms.

The RBA’s head of payments policy Tony Richards said last November that a CBDC was a potential new form of digital money that would be a claim on the central bank.

A retail, or general-purpose CBDC would be like a digital version of cash that is universally accessible, presumably through wallets on phones and possibly through devices like smart cards.

There could also be a wholesale CBDC – similar to settlement accounts at central banks – which would only be accessible to a more limited range of participants.

Mr Richards said the unit of account of the CBDC would be the sovereign currency, and the CBDC would be convertible at par with other forms of money.

He said distributed ledger technology could be used to implement a CBDC, although more traditional databases could be used.

The RBA said in a statement on Tuesday that less attention had been paid in countries like Australia, which already have modern and efficient payment and settlement settlements, to the use cases and potential economic benefits of introducing a CBDC.

“The project with the DFCRC will help address this gap by focusing on innovative use cases and business models that could be supported by the issuance of a CBDC,” the RBA said.

“The project will also be an opportunity to further understand some of the technological, legal and regulatory considerations associated with a CBDC.”

The collaboration will involve the development of a small-scale CBDC pilot that will operate in a ring-fenced environment for a period of time, with the pilot CBDC involving a real claim on the RBA.

The RBA and the DFCRC will select a range of use cases based on their potential to provide useful insights, with a report on the project’s findings and an assessment of the various use cases to be published at the end of the project.

The Treasury is participating as a member of the steering committee of the project, as part of its joint work with the RBA to explore the viability of a CBDC in Australia.

A paper will be published in the next few months to explain the objectives and approach of the project in more detail and how industry participants will be able to engage.

Andreas Furche, chief executive of the DFCRC, said CBDCs were no longer a question of technological feasibility.

“The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximise those benefits,” Dr Furche said.