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The Digital Finance Cooperative Research Centre (DFCRC) will work in collaboration with the Reserve Bank of Australia (RBA) on a project that will involve the development of a limited-scale central bank digital currency (CBDC) pilot.
The project will operate in a ring-fenced environment and involve a pilot CBDC that is a real claim on the RBA.
Despite the RBA and other central banks conducting considerable research on the feasibility and technical design of a CBDC, less attention had been given to the potential use cases and economic benefits, according to the RBA.
Treasury will also participate as a member of the steering committee for the project.
“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 the understanding of some of the technological, legal and regulatory considerations associated with a CBDC.”
“This project is an important next step in our research on CBDC,” RBA deputy governor Michele Bullock commented.
“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.”
As part of the project, industry participants will be invited to develop specific use cases that demonstrate how a CBDC could be used to provide “innovative and value-added payment and settlement services” to Australian households and businesses.
Different use cases will then be included based on their potential to provide insights into the possible benefits of a CBDC as determined by the RBA and the DFCRC.
“CBDC is 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,” said DFCRC chief executive Dr Andreas Furche.
The RBA said that the project’s findings – which will be published in a report at its conclusion – would contribute to ongoing research into the desirability and feasibility of a CBDC in Australia.
Global crypto exchange Kraken’s managing director for Australia, Jonathon Miller, commented on the RBA’s announcement: “We are fully supportive of any developments, like CBDCs, that seek to remove intermediaries.
“A retail CBDC in the Australian market has the potential to reduce costs, improve efficiency and most importantly place financial decision making in the hands of private individuals.
“Whilst allowing a direct relationship between the RBA and private individuals/enterprises would give rise to many efficiency gains, it is still very different from the promise that cryptocurrencies are delivering.”
Mr Miller further stated that cryptocurrencies are “open source and fully composable/programmable”, which are features that are critical to creating the conditions for “greenfield innovation and not another walled garden.”
“It’s inevitable that in the long run Australia’s financial infrastructure will use open source crypto based systems,” he continued.
“The benefits of crypto infrastructure as opposed to traditional legacy stack systems has already been recognised by international counterparts.”
The project is expected to take about one year to complete, with a paper set to be published in the coming months outlining the objectives and approach of the project.
“This project is an important next step in our research on CBDC,” commented RBA deputy governor Ms Bullock.
“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.”
The move comes after the Reserve Bank in New Zealand launched a consultation into whether it should create a central bank-issued digital currency last year.
According to RBNZ, the declining use, acceptance and availability of cash in New Zealand, and emerging innovations in private money, namely stablecoins (or cryptocurrency), make this “an opportune time” to consider a central bank digital currency (CBDC).
[RELATED: Reserve Bank NZ consults on digital currency move]
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