The Reserve Bank of Australia will launch a pilot to test use cases for a central bank digital currency early next year, with a number of industry players to participate.
The Reserve Bank of Australia (RBA) issued a white paper on its central bank digital currency (CBDC) project, which was launched in collaboration with the Digital Finance CRC earlier this year.
The bank is looking to better understand the concept of a centralised digital currency and the technological, legal and regulatory considerations that go with it, with the white paper laying out the objectives and approach to be adopted with this project.
A pilot platform dubbed eAUD will be launched early next year, with the RBA to adopt a private, permissioned Ethereum (Quorum) implementation using JSON-RPC APIs and smart contract (ERC-20P) interfaces.
The eAUD will be a liability of the RBA and denominated in Australian dollars, going all the way down to one cent. Some industry participants will be given access to the eAUD platform to conduct tests of their use cases in a live pilot environment.
The RBA said that while several other countries are actively investigating a CBDC and some are even planning to launch one, the rationale behind such a move hasn’t received as much attention, including the economic benefits of doing so.
“Central banks are working to understand the role of value transfer in these emerging digital economies, because of their role in the issuance of money, maintaining the stability of the financial system, and supporting the development of the payments system,” the RBA white paper states.
A CBDC can typically be either wholesale (issued from central banks to financial institutions) or retail (goes straight to consumers). The white paper says that previous work has shown there was “not a compelling case” for a retail CBDC in Australia, but that there is potential for a wholesale CBDC to “improve efficiency, risk management and innovation in wholesale financial market transactions”.
The RBA’s research project kicked off in July, and a final report on it is expected to be handed down mid next year.
It will see a pilot digital currency issued as a liability of the RBA to be used in real-world test cases put forward by Australian industry participants.
The RBA says it will consider “any compelling use cases”, whether wholesale or retail, with a limited number to be selected to have access to the pilot platform.
“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 paper states.
The stakeholders will likely include fintechs, financial institutions, public sector agencies and tech providers, with the RBA to also work with the financial regulators.
Expressions of interest for these test cases are due by the end of October, with the participants to be announced in December.
The pilot platform will run for the first four months of next year.
“The key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks and operational models for a CBDC in Australia,” the paper says.
“It is expected that industry participants will benefit from testing business models and use cases for CBDC, potentially involving their clients.”
The test cases are expected to offer new capabilities that can be leveraged for cost, speed or quality outcomes, including atomic settlement of transactions involving tokenised assets, multi-party or syndicated transactions, escrowed transactions or 24/7 operations.
Experts have previously warned the RBA to be very careful when dealing with a CBDC, with concerns it could destabilise the economy.
The RBA completed a proof-of-concept into a wholesale CBDC in December last year, and found that it could “provide efficiency gains and reduce operational risk by replacing highly manual and paper-based processes”.
The US is also considering creating its own central bank digital currency, and earlier this year announced plans to develop stronger cryptocurrency regulation.