October 16, 2023 at 14:26 GMTModified date: October 16, 2023 at 14:26 GMT
October 16, 2023 at 14:26 GMT

Reserve Bank of Australia takes open stance on CBDCs

‘CBDCs could add value in wholesale payments’, says Reserve Bank of Australia.

The Reserve Bank of Australia has included central bank digital currencies (CBDC) in its future of money work program.

Here, around one-third of the piloted use cases assessed opportunities for CBDC-enabled settlement to enhance the established financial markets, while also facilitating the development of new asset markets.

In a speech titled ‘A Tokenised Future for the Australian Financial System’, given by the assistant governor (financial system) of the Reserve Bank of Australia (RBA), Brad Jones, the country’s openness to using CBDCs as the future of money was revealed. It focused on the potential future of tokenised assets and money in Australia’s financial system.

The assistant governor opened his speech talking about the evolution of monetary systems that has often been driven by the needs of commerce, with technological innovations providing solutions.

Coming to the modern era, Jones focused on the opportunities presented by tokenisation for efficiency in the digital age while touching upon the proposed plan to use CBDCs as a form of money in the country.

Tokenised assets are digital representations of value, capable of instant updates and programmability for complex functions, potentially transforming asset trading and ownership. It comes with the benefit of increased liquidity, transparency, reduced settlement times, and lower costs, particularly in markets currently hindered by manual processes.

Jones discussed the different forms of tokenised money, including cryptocurrencies, stablecoins, tokenised bank deposits, and central bank digital currencies. While cryptocurrencies come with the risk of volatility and lack of regulation, wholesale CBDCs were presented as a form of safe money in the speech.

Stablecoins, especially those issued by “well-regulated financial institutions and that are backed by high-quality assets” (i.e., government securities and central bank reserves) could also be more widely accepted. However, due to lack of regulatory guidelines, stablecoins issued by private parties often come with increased risk, along with credit risk and market fragmentation.

In comparison, CBDCs are potentially the safest form of tokenised money, free from credit and liquidity risk, representing a direct claim against the central bank, said the assistant governor. In stating so, he clarified how CBDCs would maintain the foundational role of central bank money, representing an “evolution” rather than a “revolution” within the financial system.

However, the necessity of a CBDC was also questioned if enhancements to current systems could achieve the same objectives. Nonetheless, considering its unique benefits in terms of safety and stability, the central bank promised active exploration of its potential. This exploration is part of a broader strategic program considering the future of money.

Jones’ speech reflected a cautious yet open approach to the idea of CBDCs by Australia’s central bank. It highlighted the Reserve Bank’s ongoing research and examination rather than an immediate commitment to its implementation. The assistant governor believes that more work is needed to understand how to harness the benefits of CBDCs while managing inherent risks.

Closing his comments, Jones finished by saying: “The question of how we might arrange our monetary system to better support the Australian economy in the digital age is now a key priority for the Bank. We are on a journey here, and look forward to engaging with you and your ideas on how this might best be achieved.”