Any decision on a central bank digital currency (CBDC) in Australia is “likely to be some years away”, according to the Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC), due to the “many issues that are yet to be resolved”.
A report released on Wednesday has detailed the findings of the RBA and DFCRC’s research project to investigate the potential use cases for a CBDC in Australia, which began last August.
As part of the project, the RBA issued a limited-scale pilot CBDC in a ring-fenced environment to a select group of industry participants.
These participants, including Commonwealth Bank and ANZ, sought to demonstrate how a CBDC could be used for “innovative and value-adding payment and settlement services”.
According to the RBA and DFCRC, the results of the project suggest that a CBDC has “the potential to support increased efficiency and resilience in some areas of the payments system”.
But the two organisations said that additional research is still required.
“The project yielded valuable insights into how a CBDC, alongside other innovations in digital money, could potentially unlock benefits for the Australian financial system and the wider economy,” commented RBA assistant governor (financial system) Brad Jones.
“It also highlighted the benefits of close engagement between industry and policymakers in exploring the opportunities and challenges associated with innovations in digital money. The key findings from the project will help to shape the next phase of the RBA’s research program into the future of money in Australia.”
The project benefited from “strong industry participation”, the RBA and DFCRC noted in their report, with approximately 110 use case submissions received from firms seeking to participate in the transactional pilot, of which 16 were eventually selected.
“The various use cases explored in the project highlighted a range of areas where tokenised money could add value, including by facilitating programmable payments, atomic settlement in tokenised asset markets and offline payments,” the report said.
“The project also highlighted opportunities for CBDC to support the development of new forms of privately-issued digital money (including tokenised bank deposits or CBDC-backed stablecoins) which could address some of the business needs identified in the use case submissions.”
However, the report also drew attention to a range of legal, regulatory, technical, and operational issues associated with CBDC that the RBA and DFCRC said need to be better understood.
“For example, the project highlighted the need for more analysis of the legal underpinnings of a CBDC, including the legal basis on which one could be issued and its legal status,” it said.
“Similarly, given a CBDC could give rise to new types of business models and change the nature of some risks in the financial system, further consideration may need to be given to whether (and if so, how) existing regulatory frameworks would require adjustment.”
The RBA and DFCRC noted that the project had also highlighted challenges related to integrating a CBDC platform with industry use case applications, which they suggested had implications on the potential deployment models for a CBDC.
This was identified as another potential area for future research, along with key non-functional requirements for a CBDC that were not a focus of the RBA and DFCRC’s project, including performance, scalability, and security.
In their report, the RBA and DFCRC asserted that the project did not set out to offer a full assessment of the costs, benefits, risks, and other implications of a CBDC in Australia.
They noted that many of the issues identified as part of the CBDC project, and in previous research, would require “a program of research that is likely to unfold over a number of years”.
“Considering the broader context – where the Australian payments system is currently meeting most of the needs of end users and work on CBDC in advanced economies is generally still in an exploratory stage – it is likely that any serious policy consideration of issuing a CBDC in Australia is still some years away,” the RBA and DFCRC concluded.
