The Reserve Bank of Australia (RBA) has announced a partnership with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys Software to explore the use of a wholesale central bank digital currency (CBDC) using distributed ledger technology (DLT).
The project is currently limited to the wholesale market, reflecting the RBA’s conclusion in a recent bulletin on the Design Considerations, Rationales and Implications of a Retail CBDC that there is currently no strong public policy case to introduce a CBDC for retail use.
Through the project, the group will develop a proof-of-concept for issuing a tokenised form of CBDC. This tokenised form could then be used by wholesale market participants for funding, settlement and repayment of a tokenised syndicated loan founded upon on an Ethereum-based DLT platform.
The crux of the task is to find ways to automate features of tokenised CBDC and other financial assets, and assess the implications of “atomic” delivery-versus-payment settlement, which could be increased efficiency, risk management and innovation in the wholesale financial market.
The RBA’s announcement follows a push in the Australian fintech industry since 2017 to consider the uses and implications of CBDC. In an address to the Australian Payment Summit in December 2017, the RBA’s governor flagged the RBA’s intention to examine how settlement arrangements with central bank money might evolve as new technologies emerge. Subsequently, in 2019, the RBA’s in-house innovation lab worked on a proof of concept for a DLT-based interbank payment system using tokenised CBDC backed by exchange settlement account balances. These developments provide the foundation for the current CBDC project.
The CBDC project is expected to be completed around the end of 2020, with a report published on the project and its findings during the first half 2021.
This step in considering the future role for a wholesale CBDC in Australia is an interesting development, although it is not surprising, given growing international interest in this concept and the acceleration of digital transformation in the banking industry.