The Reserve Bank of Australia (RBA) has announced that it will commence a “live pilot” for a central bank digital currency (CBDC), with the main focus being on potential real-world use cases.
The central bank made the announcement via a media release on March 2 that confirmed that it would be working with the Digital Finance Cooperative Research Center (DFCRC) for the pilot. Since the Reserve Bank of Australia disclosed its intention to explore CBDCs, several entities indicated an interest in participating in the process by submitting use case scenarios.
Per the announcement, the central bank selected a handful of entities to lead research in 14 use-case scenarios after satisfying set requirements. The pilot is scheduled to begin in the coming months, with regulators hoping that the experiments “provide insights into the possible benefits of a CBDC.”
“It has also been encouraging that the use case providers that have been invited to participate in the pilot span a wide range of entities in the Australian financial system, from smaller fintechs to large financial institutions,” Brad Jones, Assistant Governor at the RBA, said.
“The pilot and broader research study that will be conducted in parallel will serve two ends – it will contribute to hands-on learning by industry, and it will add to policy makers’ understanding of how a CBDC could potentially benefit the Australian financial system and economy,” Jones said.
Australia and New Zealand (ANZ) bank and the Commonwealth Bank will handle nature-based asset trading, while the Australian Bond Exchange will handle corporate bond settlements. Tokenized FX settlements and custody of funds will be the purview of Canvas Digital and Moonova, respectively.
Other use cases to be explored by the RBA include offline payments, superstream payments, interoperable CBDC for trusted Web3 commerce, CBDC distribution, and livestock auctions.
Weighing the pros and cons
The RBA has been mulling over the benefits and the attendant risks associated with launching a CBDC. In December, Jones warned attendees of a financial conference that commercial banks face the biggest risks as customers can change the fiat currencies in their accounts “at the stroke of a keyboard.”
He warned that increased CBDC adoption would leave commercial banks without enough funds to lend to borrowers. However, he still conceded that CBDC usage would foster healthy competition in the space while increasing economic liquidity.
“This would be particularly welcome by small merchants, who continue to face significant costs in accepting electronic payments,” Jones remarked in favor of a CBDC launch.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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