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Highlights
- The RBA’s latest report has found that a digital dollar could make such transactions more efficient.
- ‘Project Atom’ seeks to discuss benefits of digitising and autonomising manual and paper-based banking processes employing distributed ledger technology (DLT).
- The RBA says a Central Bank-backed digital currency can instantly settle large transactions on a DLT.
With an aim to improve Australia’s wholesale financial market transactions, the Reserve Bank of Australia (RBA) has found that a central bank-issued digital dollar could make such transactions more efficient.
On Wednesday, the RBA announced a “successful conclusion” of a two-year-long project into wholesale central bank digital currencies (CBDCs). ‘Project Atom’ seeks to discuss benefits of digitising and autonomising manual and paper-based banking processes employing distributed ledger technology (DLT).
CBDC is a kind of digital banknote, which the RBA refers to as an ‘eAUD’. Wholesale CBDCs would employ digital cash to instantly settle large transactions on a DLT.
The Australian central bank partnered with the Commonwealth Bank of Australia, National Australia Bank, Perpetual, and others for developing a ‘proof of concept’ for issuing a CBDC.
The research report was tabled the same day as Treasurer Josh Frydenber launched the ‘payments and crypto reform plan’ for fintech and crypto regulation in the country.
How issuance of CBDC can help the Australian economy
While the exploration of the concept of CBDCs started in 2018, the focus increased in 2020 as other economies, particularly China, began launching public trials of their digital currencies. The RBA carried out testing on Ethereum-based distributed ledger technology platform to explore the likelihood of tokenised form of CBDC.”
- According to the report, CBDC could help in “replacing highly manual and paper-based processes related to the origination and servicing” of data, transactions, loan payments and settlements.
- It could also help to“potentially allow other forms of programmability that could improve efficiency and reduce risk in transactions.”
CBDCs are known to come with a very low transaction processing fee. They are even known to enable seamless transfer across borders. A CBDC also cuts down on any third-party risk.
Project Atom’: Is CBDC future of the Australian economy?
Has the time for the central bank backed CBDC arrived?
The RBA’s paper didn’t throw light on the cons associated with a CBDC. However, the main disadvantage of such a currency is that it can compromise the privacy of the citizens. In addition, CBDC can introduce complex regulations of a central bank or a monetary authority.
Meanwhile, the RBA said that further research is needed before issuing a CBDC. However, there are sections of experts who are of the view that it is inevitable the Australian central bank will create a new form of digital money for wholesale users at least, if not for retail.
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