The Reserve Bank (RBA) will mint and issue a pilot central bank digital currency (CBDC) to be known as the eAUD as part of its collaborative research project with the Digital Finance Cooperative Research Centre (DFCRC).
The project, which was originally announced in August, aims to explore the use cases for a CBDC in Australia and to help further understand some of the technological, legal and regulatory considerations associated with a CBDC.
In a white paper released on Monday, the RBA and DFCRC explained that the eAUD will be issued as a liability of the RBA to be used in real-world pilot implementations of services offered by industry participants.
Stakeholders including financial institutions, fintechs, public sector agencies and technology providers have been invited by the RBA and DFCRC to participate in the project.
"Interested industry participants are invited to make submissions on CBDC use cases that have the potential to deliver benefits to the functioning of the Australian economy and financial system,” they said.
“Participants can also express interest in operating their use case in a pilot project to test and demonstrate the value proposition.”
According to the RBA and DFRC, all submissions will be used to inform assessments of the rationale for an Australian CBDC and a limited number will be selected for operation within the CBDC pilot project infrastructure.
The amount of eAUD issued during the project will be capped at an amount to be determined by the RBA based on the requirements of the selected used case providers and no interest will be paid on any holdings of eAUD.
Only Australian entities and individuals will be able to hold eAUD and all use case providers will be required to redeem their eAUD holdings with the RBA at the conclusion of the pilot.
“Once all outstanding eAUD has been redeemed, the RBA will burn (destroy) the eAUD. The eAUD will not exist beyond the conclusion of the pilot project,” the white paper noted.
The eAUD platform will be developed and installed by the DFCRC as a “private, permissioned Ethereum (Quorum) implementation” while the eAUD ledger will operate as a centralised platform under the management and oversight of the RBA.
However, the white paper noted that this did not necessarily mean that any eventual CBDC will be blockchain-based or that Ethereum is an appropriate choice for a production system.
“The design of the project is intended to be minimally prescriptive — both in the kind of CBDC model assumed, and in the kind of use cases explored,” the white paper said.
“The project is seeking to facilitate ideation and innovation in use cases, and in turn use those results to better understand the case for introducing a CBDC in Australia.”
The DFCRC indicated that it hopes to select between 10 and 12 use case providers to operate their services as part of the pilot.
Submissions will remain open until 31 October and the selected use cases are expected to be announced in December.
Under the current project timeline, the CBDC pilot will run from January to April next year before a final report is published “around the middle of 2023”.
“These findings will contribute to ongoing research into the desirability and feasibility of a CBDC in Australia,” the white paper said.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.