Australia is not planning on releasing a central bank digital currency (CBDC) anytime soon, according to a new report from the Reserve Bank of Australia.
“Given the many issues that are yet to be resolved, any decision on a CBDC in Australia is likely to be some years away,” the report said.
Legal, technical, and practical issues were highlighted in the pilot project and were the driving reasons behind the RBA’s decision.
A CBDC is the digital currency issued by a country’s central bank that is equivalent to the country’s fiat currency.
While challenges of regulation and financial risk were raised in the report, there were benefits to a national cryptocurrency. An Australian CBDC could bring more efficiency and resilience to the country’s digital payments, as well as catalysing growth in the private crypto sector.
Challenges facing an Australian CBDC
The Reserve Bank of Australia partnered with the Digital Finance Cooperative Research Centre last year to conduct this pilot project. Its main goals were to research the opportunities that CBDCs could bring to the country and analyse the risks.
The newly released report said: “The project raised a number of questions and revealed various legal, regulatory, technical and operational issues that warrant further consideration as part of future research on CBDC in Australia.”
Part of this complication was down to the cryptographic keys necessary to maintain the CBDC. Finding an affordable and secure solution proved to be difficult for companies that weren’t already using a ledger network.
Australia’s central bank also noted the risks to the broader financial system. “Further consideration may need to be given to whether (and if so, how) existing regulatory frameworks would require adjustment.”
The bank believes that a deeper dive into the business and technical design of a CBDC is crucial. This would ensure that the digital currency can truly deliver on its promises. Aspects like performance and scalability would need more attention.
The project did note benefits that a CBDC could bring to the country. It found that the digital asset could bring efficiency and resilience to the payments system.
Other utilities were also highlighted. “The use cases examined in the project suggested that broad access to a CBDC could support (directly and indirectly) the creation of new or more efficient markets. Supply chain and business processes could also be enhanced.”
These advances in payments, transparency and resilience were said to “unlock benefits for the economy as a growing share of activity occurs in the digital domain”.
This includes the private sector. Some participants of the pilot project suggested that a CBDC could bring more digital infrastructure to companies. For example, stablecoins could be issued that are fully backed by the CBDC.
“In this sense, a CBDC could be viewed more as an enabling complement to, rather than substitute for, private sector innovation,” the report said.
More CBDC research needed
While challenges of a CBDC were highlighted, this research framework for analysing digital currencies was successful, according to the new report.
“This project has demonstrated the value in close engagement between industry and policymakers to better understand the opportunities and challenges associated with innovations in digital money.”
There was a resounding takeaway that more research is needed before Australia launches a CBDC.
It notes that the pilot project is not “a complete assessment of the costs, benefits, risks and other implications of introducing a CBDC”. Rather, it was focused on exploring how a national digital currency could be used by industries and enhance payments systems.