Authors: Michael Bacina, Steven Pettigrove, Jake Huang, Lola Hickey, Luke Misthos
In a speech last week, Brad Jones, the Assistant Governor (Financial System) of Australia’s central bank (the RBA) examined the risks and opportunities of a retail central bank digital currency (CBDC).
Consistent with the RBA’s previous messaging, Jones asserted that the RBA has yet to see a strong public interest case for a retail CBDC emerge, but that the bank is keeping an open mind. This highlights the “chicken and egg problem”, as use cases building on foundational technology like a true decentralised digital cash will likely need a trusted issuer to be in place in order to incentivise widespread adoption and novel uses cases emerge over time.
Jones commented on the initial response to the RBA’s eAUD pilot program first announced in July which is intended to explore use cases for a retail CBDC. Jones noted that the pilot had:
attracted much more interest from industry than we anticipated – more than 140 use case proposals from around 80 entities have been submitted.
A wide range of use cases have been proposed spanning:
- e-commerce payments;
- offline payments;
- government payments; and
- the trading and settlement of tokenised assets.
The providers which have lodged submissions include large banks, financial market infrastructure providers and consultancies, small digital asset firms and fintechs. The most useful base use-case of all is simply the existence of a digital equivalent to cash which can be transacted peer to peer.
The RBA’s project team is currently in the process of identifying a number of use cases which will participate in the pilot early next year.
In concluding remarks, Jones speculated that future payments reforms may prove evolutionary rather than revolutionary. These could include both fintech and blockchain based solutions such as the use of payment stablecoins and tokenised bank deposits to facilitate atomic settlement of financial and real assets, and the emergence of a wholesale CBDC to improve efficiency and automation of the underlying payment rails of our economy.
The huge response to the RBA’s CBDC pilot suggests a high level of blockchain industry engagement and optimism about the potential for an Australian CBDC. We will continue to monitor developments as the pilot starts early next year, with the RBA expected to report on findings from the pilot in mid-2023.
