The RBA project will explore a potential form of wholesale central bank digital currency (CBDC) that will use distributed ledger technology (DLT) as part of ongoing research.

CBDCs are designed to be equivalent to the nation’s paper currency and subject to the same government-backed guarantees. Central banks can issue the currency as a digital representation of a country’s fiat currency, in addition to printing money.

The RBA project will involve the development of a proof of concept (POC) to issue a tokenized form of CBDC that can be used by wholesale market participants to fund, settle and disburse a tokenized syndicated loan on an ethereum-based DLT platform.

The proof of concept will be used to explore the implications of delivery versus payment settlement on a DLT platform, as well as other potential features for programming and automation of tokenized digital currency and financial assets.

The move comes after China's recent launch of a digital yuan and other central banks signaling they are thinking around digital currencies. In September, Mastercard launched its own virtual testing environment for central banks to evaluate digital currencies.

However, the Chinese digital currency has not used distributed alloying technologies – unlike the RBA's new potential wholesale CBDCs and cryptocurrencies such as Bitcoin.

Michelle Bullock, assistant governor, financial system at the Reserve Bank, said her organization aims to explore the implications of currency for efficiency, risk management and innovation in financial market transactions.

"While the use case for CBDC in these markets remains an open question, we are pleased to collaborate with industry partners to explore whether there is a future role for wholesale CBDC in the Australian payments system," Ms Bullock said.

But Jonathan Miller, Australian managing director of global digital currency exchange Kraken, commented that the RBA's move was a complete reversal of its previous position that CBDC would not benefit Australian consumers.

"Any Australian who has tried to send AUD overseas will tell you otherwise, as Australia has some of the highest remittance costs in the OECD," Mr Miller said.

"We see huge potential for wholesale central bank digital currency, and in particular this technology can bring great benefits to our neighboring Pacific jurisdictions that are heavily dependent on AUD remittances."

He added that China's experience with digital yuan served as an example of how popular CBDCs are and how they can work.

"This week alone, more than 4 million transactions totaling more than 2 billion yuan ($299 million) have taken place using the currency, according to Yi Gang, governor of the People's Bank of China," Mr. Miller said.

"Covid-19 has sharpened the case for mass adoption of CBDCs and accelerated the need for contactless banking and payments, a trend that is clearly visible in Australia, now China and neighboring jurisdictions in the Asia-Pacific region."

The RBA project is expected to be completed around the end of the year. Stakeholders intend to publish a report with key findings in the first half of 2021.

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting mainly on banking, financial services and wealth.

Prior to joining the team in 2018, Sarah worked in commercial media and produced stories for a current affairs program on public radio.

You can contact her at [email protected].