Australia’s Central Bank did not see any advantages in the introduction of retail CBDC

What’s new? The Reserve Bank of Australia (RBA) will not be developing a retail CBDC anytime soon, and will instead focus on launching a wholesale version of the CBDC. In a speech on September 18 at the Intersekt Fintech conference in Melbourne, RBA assistant governor Brad Jones unveiled a three-year roadmap that is mainly focused on developing a wholesale CBDC system.

Speech by the RBA senior executive

What else is known? According to the RBA’s research, retail CBDC has little effectiveness in terms of innovation, whereas wholesale CBDC would provide a number of key benefits to commercial and central banks.

These benefits included reduced counterparty and operational risk, greater transparency and audit efficiency, increased liquidity and transactional capabilities, and lower intermediation and compliance costs.

Jones added that the potential benefits of retail CBDCs to the Australian public are limited or unclear. The asset comes with a number of challenges, including higher borrowing costs, increased bank failure risk, and challenges in implementing appropriate monetary policy.

According to Jonas, the Central Bank’s priority is to launch the public phase of the Acacia project, which will explore wholesale CBDC and tokenized commercial bank deposits.

The Acacia project involves exploring the use of CBDCs for cross-border payments, as well as hosting industry and academic advisory thematic forums and supporting legislative initiatives that encourage financial innovation.

According to Jones, the RBA is conducting further research into the potential benefits of asset tokenization and the role of blockchain and smart contract technology in central bank financial transactions:

“The programmability of tokens via smart contracts, and the ability to free up collateral and reduce counterparty risk by atomically exchanging money and assets on the same ledger, have been of particular interest in experimental research.”

Also referred to as a national cryptocurrency, CBDC is another form of money issued by central banks alongside cash and non-cash, a digital banknote.

Individuals can use CBDC to settle payments with businesses, stores, or among themselves (retail CBDC), and between financial institutions to settle transactions in financial markets (wholesale CBDC).

Earlier, the Atlantic Council reported that CBDC is being studied by authorities in 134 countries, accounting for 98% of the world’s GDP. 66 countries are at an advanced stage of research, development, pilot, or launch.

In June, the Bank for International Settlements (BIS) said it would start using CBDC for instant cross-border payments. Analysts at the bank believe the asset will speed up and cheapen transactions, expand access to financial services, and possibly facilitate budgetary transfers in times of crisis.