Aussies crowdsource a business case for central bank digital currencies

Ring-fenced tests planned, despite previous regulatory skepticism about the need for fiat digi-dollars

Australia"s Reserve Bank (RBA) has announced it will try to find applications that justify the creation of a central bank digital currency (CBDC).

The Bank's announcement states that plenty of research into the feasibility and possible technical design of CBDCs has been undertaken, but less work has been done on "use cases for a CBDC and the potential economic benefits of introducing one."

Working alongside Australia's Digital Finance Cooperative Research Centre (DFCRC), the RBA will therefore conduct "a research project to explore use cases for a CBDC in Australia."

The project will try to find "innovative use cases and business models that could be supported by the issuance of a CBDC" and also ponder "technological, legal and regulatory considerations associated with a CBDC."

The RBA and DFCRC plan to invite interested parties to suggest use cases that "demonstrate how a CBDC could be used to provide innovative and value-added payment and settlement services to households and businesses."

Tests will be run in a "ring-fenced" environment and the project will wrap up within a year. A report on those efforts "will contribute to ongoing research into the desirability and feasibility of a CBDC in Australia."

The project is noteworthy because the RBA directed the creation of Australia's New Payments Platform (NPP), which enables real-time payments between account holders of licensed financial institutions. The NPP requires the involvement of institutions, but works as quickly and efficiently as exchanging cash because users can identify their bank accounts with an email address or mobile phone number instead of having to memorize and recite account numbers.

The NPP is so fast and efficient that in late 2021 the RBA's head of payments policy, Tony Richards, opined that it could in principle deliver the innovations thought to be achievable with a CBDC.

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Richards also noted the potential for private payment systems to dominate markets, and suggested CBDCs could prevent such unhelpful market concentrations. He therefore flagged experiments on a CBDC – and today's announcement confirms they'll happen.

Australia's approach is a little different to other nations that are contemplating a CBDC. The UK's effort to create "Britcoin" is focused on design, while India sees its digital rupee as a means of managing the risks of unregulated cryptocurrency. China, meanwhile, already has a working Digital Yuan and has made it available to hundreds of millions of consumers, without seemingly making much of a dent in enthusiasm for entrenched e-payment schemes offered by its tech giants. ®

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