RBA to pilot central bank digital currency

The Reserve Bank of Australia (RBA) is set to develop a “limited-scale” pilot for a central bank digital currency (CBDC), teaming up with the industry-government cooperative, the Digital Finance Cooperative Research Centre (DFCRC) and the Australian Treasury to test potential use cases for a local CBDC.

The RBA and DFCRC say they will address “innovative use cases and business models that could be supported by the issuance of a CBDC”, adding that their pilot will determine the “technological, legal and regulatory” consequences of implementing a Reserve Bank-issued digital currency, as well as potential economic benefits that may be realised from it.

As part of the project, the pair will develop a “ring-fenced” pilot of a CBDC representing a real claim – or “digital asset representing a liability” – on the Reserve Bank.

“Interested industry participants will be invited to develop specific use cases that demonstrate how a CBDC could be used to provide innovative and value-added payment and settlement services to households and businesses,” the pair said in a statement.

“The Bank and the DFCRC will select a range of different use cases to participate in the pilot, based on their potential to provide insights into the possible benefits of a CBDC.”

CBDCs are digital tokens, like cryptocurrencies, issued by a central bank (in this case the RBA) and pegged to the value of that country’s fiat currency.

According to DFCRC, the project intends to make the identification and testing of opportunities as “real” as possible, while opening up opportunities to test an array of potential use cases.

“The design of the pilot CBDC for our project will be purposefully broad and experimental – to permit integration with as wide a variety of use cases as possible.”

However, as the DFCRC stressed, the pilot serves only as a test bed for the feasibility of a CBCD, and the should not imply that a CBDC will operate in Australia in the future.

According to the pair, the project will not seek to establish technology feasibility or facilitate technology selection for a CBDC. DFCRC partner, Trovio, however, will assist with security aspects of operating the CBDC.

“CBDC is no longer a question of technological feasibility. The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximise those benefits,” DFCRC chief executive Dr Andreas Furche said.

The RBA and DFCRC will invite participants with legitimate proposed use cases for CBDC, as well as an association with the DFCRC, to join the Pilot Project and to develop “innovative and value-added payment and settlement services to households and businesses”.

The RBA and DFCRC will select a range of use cases from these options based on the potential insights gained and benefits that may be realised. A report will then be created from the findings, providing an assessment of each use case tested.

RBA deputy governor Michele Bullock said the project provides “an important next step in our research on CBDC”.

“We are looking forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia.”

The DFCRC is a 10-year, $180 million research program funded by industry partners, universities and the Australian Government, through the Cooperative Research Centres Program. The collaborative program is tasked with finding means to trade and exchange digitised assets directly and in real-time on digital platforms.

The RBA, alongside CBA, NAB and other partners, successfully concluded a proof-of-concept late last year for trading a wholesale CBDC using blockchain. Dubbed Project Atom, the project determined whether a tokenised form of CBDC could be used by wholesale market participants for the funding, settlement and repayment of a tokenised syndicated loan on an Ethereum-based blockchain platform.