The RBA is looking into creating a digital currency that would allow banks to settle large transactions instantly

The RBA is looking into creating a digital currency that would allow banks to settle large transactions instantly
The RBA is looking into creating a digital currency that would allow banks to settle large transactions instantly. Photo: Getty Images
  • The RBA has signalled that it is giving serious consideration to the use of a central bank digital currency (CBDC) among retail banks.
  • In the short term, CBDCs could give banks the opportunity to settle high-value transactions instantly and transparently.
  • The banks, though, want the central bank to go further and get ahead of the trend, in which the sector thinks Australia could be a leader.
  • Visit Business Insider Australia’s homepage for more stories.

The Reserve Bank of Australia is considering creating its own central bank digital currency, or “CBDC”, for early use in wholesale markets, which would effectively allow banks to trade in smart contracts and settle major transactions, like home and business loans, instantly.

In a speech to a Women in Payments event on Wednesday, the RBA’s assistant governor, Michele Bullock, said CBDCs have proved to deliver on multiple fronts around the world and that the central bank was considering its own for wholesale use among the banks. 

“It is in the wholesale space this is, at the moment, of most importance,” Bullock said. 

“The concept of being able to have atomic settlement, and program the way things will happen are important in those markets. I am not as convinced it is so important in the retail space.”

In the short term, CBDCs hold major promise for the local banking sector, where they would effectively allow for the creation of “programmable” money and smart contracts that fast-track settlements on large transactions. 

Lisa Wade, director of digital innovation and sustainability at NAB, told the same event that their use could also drive Australian participation in Web3 markets at an industrial scale, while boosting transparency and cutting out the complexities involved in major transactions.

The assistant governor’s remarks arrive less than one week after Tony Richards, the Reserve Bank of Australia’s outgoing head of payments policy, delivered his final overture at the central bank and drew attention to CBDC use cases, too.

Richards predicted that, in future, investors will become more risk averse, and consumers looking to use crypto assets as currency will be more likely to lean toward stablecoins or fiat currencies like CBDCs issued by a regulated body. 

Bullock backed the claims, saying she wasn’t sure she could see a future where crypto plays a role in Australia’s payment system — though stablecoins, linked to fiat currencies issued by a regulated body, just might. 

As investor interest in crypto surges, the RBA holds firm

Australia has become a world leader in cryptocurrency adoption, with Finder data suggesting nearly 18% of the population owned a stake in cryptocurrencies like Bitcoin, Ethereum, or Cardano in October, up from 13% in March.

That market hype is expected to continue through to the end of the year. A survey of those who have already dabbled with blockchain assets found nearly a quarter of respondents are considering passing off crypto-themed gifts this Christmas, potentially exposing the technology to an even broader audience.

But Richards said interest in the asset class could still wane. Speaking to the Australian Corporate Treasury Association last Thursday, Richards said there are “plausible scenarios” where a “range of factors” could see speculative demand for crypto assets unwind at speed. 

“Households might be less influenced by fads and a fear of missing out and might start to pay more attention to the warnings of securities regulators and consumer protection agencies in many countries about the risks of investing in something with no issuer, no backing, and highly uncertain value.”

It’s a point that has long been doubled down upon by Australian regulators who have only recently started to warm to the asset class.

Late last month, ASIC gave early approval to fund managers looking to launch crypto exchange traded funds, with underlying crypto assets currently limited to Bitcoin and Ethereum. 

ASIC’s announcement added to a wave of recent advancements made by cautious politicians and conservative regulators, who have on the whole been slow to embrace crypto in Australia.

Weeks earlier, Liberal senator Andrew Bragg also made moves to convince policymakers to legislate for the space in Australia to stop Australian-based digital currency exchanges from decamping to the UK and Singapore as a result of insufficient regulatory frameworks.

But Richards said they might have good reason to be sceptical about the longevity of the “speculative demand” for crypto assets, which he said would likely be thwarted once central banks start to issue CBDCs of their own.