RBA says CBDC decision is likely ‘some years away’

The Reserve Bank of Australia (RBA) said any decision on issuing a central bank digital currency (CBDC) is likely “some years away”, following a pilot study.

From March to July, the RBA allowed selected financial institutions to test 16 use cases for a digital currency using a CBDC prototype. The prototype had a real legal claim on the central bank.

Australia’s payments system is currently meeting most end-users’ needs, the RBA and the Digital Finance Co-operative Research Centre said in a report.

It said various regulatory and operational problems over issuing a CBDC have yet to be resolved. “It is likely that any serious policy consideration of issuing a CBDC in Australia is still some years away,” said the report, published on August 23.

But it said a CBDC could increase the “efficiency and resilience” of some areas of the Australian payments system.

Many industry players said a tokenised CBDC could facilitate “atomic” settlement, the RBA said, reducing risk and speeding up the process.

Participants also said tokenised CBDC could automate complex payments, such as those involving multiple parties, possibly reducing errors and counter-party risks.

Some institutions also explored the possibility of using a CBDC for offline payments in situations where electricity and telecommunication services were not available. Others suggested that a CBDC could help people with difficulties using conventional banking services, such as travellers, foreign students and victims of domestic violence.

“The project yielded valuable insights into how a CBDC, alongside other innovations in digital money, could potentially unlock benefits for the Australian financial system and the wider economy” said Brad Jones, RBA assistant governor for financial system.

But the RBA suggested that a CBDC may not be the only instrument capable of achieving these benefits. It said privately issued digital money such as tokenised bank deposits or asset-backed stablecoins may achieve such results.

Some participants noted that a CBDC could help develop new forms of privately issued payment instruments. The RBA said a CBDC could therefore be seen as an “enabling complement” to, rather than a substitute for, private sector innovation.

The report also said some legal and regulatory issues around CBDCs need further study.

The fact the pilot CBDC had a real legal claim on the RBA made some participants feel unsure about its legal and regulatory status, the RBA said.

“Some participants were uncertain if they were providing custody services or dealing in a regulated financial product because of holding or dealing in the pilot CBDC,” it added.

Jones said the key findings from this pilot will help shape the RBA’s ongoing research into the future of money in Australia. The RBA and the Treasury are expected to release a paper in mid-2024 to report on their CBDC research and outline future plans.