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Reserve Bank of Australia Meeting Finds No Strong Case for CBDC or e-AUD

The Payments System Board of the Reserve Bank of Australia (RBA) has found no strong public policy-case to issue a central bank digital currency (CBDC) despite the trend of declining cash-use throughout the COVID-19 pandemic.

A meeting of the Reserve Bank of Australia’s Payments System Boards was held today, to discuss the impact of the COVID-19 pandemic on the Australian payments ecosystem and the subject of issuing a CBDC, among other issues.

According to RBA release on Aug 21, Australian payments systems operators and retail payments have proven resilient throughout the COVID-19 pandemic disruption to the economy as have financial markets infrastructures. High on the RBA’s discussion was the declining uses of physical cash and the potential of a central bank digital currency.

Reserve Bank of Australia Deems CBDC Unnecessary

Digital payments services have come to the forefront for economies globally as the disruption of the highly infectious COVID-19 virus has led to decreasing use of physical cash.

Like the United States and China, as well as a host of other nations—Australia has floated the idea of a central bank digital currency or the e-AUD. However, discussions in the meeting of the RBA’s Payments System Board concluded that there was not a strong enough case for a retail central bank digital currency given the competitiveness of Australia’s current cashless systems.

Per the Reserve Bank of Australia’s announcement:

“Consistent with previous discussions, members considered that at present there is not a strong public-policy case for issuance in Australia, given that the electronic payments system in Australia compares very favorably with those in many other countries and access to cash remains good.”

The Payments System Board will continue to monitor the global payments ecosystem and continue research on the CBDC technology and policy.

The meeting reports said:

“The Board will continue to closely watch the experience of other jurisdictions. The Bank is continuing to research the technological and policy implications of a wholesale form of CBDC and is working to develop a proof-of-concept with external parties to explore aspects of wholesale CBDC, building on research the Bank did in its Innovation Lab last year.”

The Reserve Bank of Australia Refuses to Join the CBDC Bandwagon

The Reserve Bank of Australia (RBA) has refused to join the bandwagon with respect to the development and issuance of a Central Bank Digital Currency (CBDC). Following a previously reported update from the meeting of the Reserve Bank, the apex bank’s position was confirmed in a publication released on Sept.17 in which the RBA noted that it has not seen a strong public policy use case to propel it to issue its own CBDC.

According to the RBA publication, the use of Australian banknotes has seen a slight decline in the past few decades as most citizens switched to electronic payments. The RBA acknowledged that the declining use of banknotes in other countries has fueled the developments of CBDCs but noted that the technical feasibility of such a new form of money has not yet been established anywhere.

Despite the RBA’s resolve not to issue its own CBDC, it is not oblivion of its potentials to consolidate its monetary mandates. “The introduction of a CBDC would represent a change to a significant element of Australia’s monetary system and could have effects on the structure of the financial system and financial stability, so it would be relevant to the Bank’s responsibility for maintaining monetary and financial stability,” The RBA noted in the publication.

In all, the Reserve Bank of Australia affirmed that it will continue to monitor the “experience of other jurisdictions that are considering implementing CBDC projects.”

While Australia Drifts Off, CBDCs Advances in Other Countries

While the position of the Reserve Bank of Australia implies that the nation will tone down on any CBDC move, nations like China, Japan, Brazil amongst others are advancing in their CBDC drive.

While China is in the testing phase for its CBDC, the Bank of Japan has declared that its CBDC is a top priority propelling it to put its top economist, Kazushige Kamiyama, to take charge of the payments and settlements unit of the proposed CBDC.

While the Bank of International Settlement acknowledged that many Central Banks are considering the development of CBDCs, the like of the Bank of Brazil are at the infancy stage, forming a digital currency study team to drive its CBDC research agenda.

Reserve Bank of Australia May Still Have Its Eye on CBDC After All

The Reserve Bank of Australia’s (RBA) Head of Payments Tony Richards has weighed in on the emerging topic of central bank digital currencies (CBDC), suggesting that the country’s top bank may not have entirely given up on the quest to pursue CBDC issuance.

Speaking at the UWA Blockchain, Cryptocurrency, and Fintech Conference, Richards noted that Australia currently has an advanced payment system, which justifies the RBA’s recent conclusion of not finding a strong public policy case scenario in which central bank digital currency will bring more to the country.

Despite this, Richards said that due to the bank’s mandate to promote efficiency in the payment system, it will give up on the topic of a potential CBDC rollout. The RBA head executive noted:

“Consistent with the Bank’s mandate to promote competition and efficiency in the payments system and contribute to the stability of the financial system, we will be continuing to consider the case for a CBDC, including how it might be designed, the potential benefits and policy implications, and the conditions in which significant demand for a CBDC might emerge.”

According to Richards, should the country eventually decide to develop and issue a CBDC, the private sector will be playing a key role in driving its retail adoption with a worthy incentive. Per his words:

“There would most likely be a very significant role for the private sector in any retail CBDC. And there would also have to be some incentive for them to participate. One can only speculate here, but the business model for service providers could potentially involve charging account-keeping fees or transaction fees or providing CBDC payment services for free together with other paid financial services or in return for using customers’ data.”

While the Reserve Bank of Australia has yet to forge any decisive action plan with regards to CBDC development, other nations such as China, Canada, and Estonia have made significant strides towards furthering a central bank digital currency issuance, with Estonia recently commissioning a multi-year CBDC research.

Currently, China appears to be in the lead, as it has been reported to be testing out its central bank digital currency, dubbed digital currency electronic payment (DCEP) in certain major Chinese cities, such as Beijing.

Reserve Bank Of New Zealand Wants to Preserve Cash, Monitors CBDC Developments

The Reserve Bank of New Zealand—Te Pūtea Matua—seeks to preserve the benefits of cash for its citizens, while paying close attention to the future of money and central bank digital currency (CBDC) development.

The Reserve Bank of New Zealand, (Te Pūtea Matua) seeks “to preserve the benefits of cash for all who need them” for financial inclusion in the economy, while the central bank is also keeping an eye on CBDC developments and the changing nature of money.

Assistant Governor of the Reserve Bank, Christian Hawkesby told the Royal Numismatics Society of New Zealand annual conference today Oct. 19:

“Cash is being used less as a means of payment and access to cash is declining. However, cash provides important benefits to many people, including legal tender money, social and financial inclusion, peer-to-peer payments, backup payments, and privacy and autonomy.”

The Reserve Bank is encouraging banking sector participants to consider supporting citizens who depend on cash for everyday needs.

Governor Hawkesby revealed that the Reserve Bank of New Zealand is building new policy and governance capabilities to support its strategy, as well as to prepare for the future of money. He said, “In the years ahead, some of the biggest questions facing central banks could well be around the future of money itself.”

The Future of Cash and CBDC

The Reserve Bank’s immediate priority is to support the banking and service industries to ensure that cash systems continue to be fit for purpose. Initiatives include reshaping vaulting arrangements, banknote standards, and building towards a sustainable future. Hawkesby highlighted that ultimately, a more transformational solution might be needed.

Governor Hawkesby said:

“Looking forward, we remain open-minded about how the technology of money and payments will continue to evolve.”

The Reserve Bank Governor highlighted the future of cash as being created by the central banks around the world— who are competing to be the first to release their central bank digital currencies (CBDC). China has been the frontrunner, aggressively piloting its own DCEP (Digital Yuan) and the most powerful central banks including the Federal Reserve and the European Central Bank collaborating on research to assess the positives and negatives of CBDC implementation.

While the New Zealand central bank is also researching retail central digital bank currencies, Governor Hawkesby said, “Although we have no imminent plans to issue a CBDC, we are well-connected and considering these developments very closely.”

Reserve Bank of Australia Also Hesitant on CBDC

CBDC development in neighboring Australia also appears off to a slow start with reports in late August that the Payments System Board of the Reserve Bank of Australia (RBA) had found no strong public policy-case to issue a central bank digital currency (CBDC) despite the trend of declining cash-use throughout the COVID-19 pandemic.

However, the latest reports from the RBA’s Head of Payments Tony Richards have revealed that Australia’s central bank may not have entirely given up on the quest to pursue CBDC issuance.

Richards said that due to the bank’s mandate to promote efficiency in the payment system, it will give up on the topic of a potential CBDC rollout. The RBA head executive noted:

“Consistent with the Bank’s mandate to promote competition and efficiency in the payments system and contribute to the stability of the financial system, we will be continuing to consider the case for a CBDC, including how it might be designed, the potential benefits and policy implications, and the conditions in which significant demand for a CBDC might emerge.”

Australian CBDC Pilot Test to Commence Next Year – RBA

The Reserve Bank of Australia (RBA) has published a Whitepaper to give additional insights into its proposed Central Bank Digital Currency (CBDC), dubbed the eAUD.

In its concerted efforts to explore all possible use case scenarios concerning the creation of the eAUD, the RBA partnered with the Digital Finance Cooperative Research Centre (DFCRC) to develop systems jointly to test the capabilities of the new legal tender. The duo set out to conduct the trials, and per the recently published Whitepaper, the pilot tests are scheduled to commence next year.

Billed as one of the most advanced economies exploring the launch of a CBDC, Australia, through the RBA, will seek to understand how the system will work in all environments that features key stakeholders in the country’s financial ecosystem.

“The key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks, and operational models for a CBDC in Australia,” the Whitepaper reads.

Besides the RBA and the DFCRC, each entity conducting the trials has its own defined contributions to the broader project. While the RBA will be in charge of issuing the eAUD, the DFCRC will be tasked with designing the interface for the currency and an outfit through which every participant will interact.

In the course of the test, the RBA will onboard private banking partners and other stakeholders that can help in issuing the eAUD to public members as it seeks to expand the scope of the trials.

According to the Whitepaper, the comprehensive pilot test will run from January to April next year, and prospective participants have until October 31 to show their expressions to be a part. The pilot platform will be shut down by the end of April, and the RBA will oversee the publications of the findings by mid-2023.