Central Bank Digital Currency (CBDC) in Australia. What is it?

Australia is among the countries at the forefront of exploring Central Bank Digital Currency (CBDC). In light of recent developments, it is important to have a better understanding of CBDC and explore its potential applications for finance and payments here in Australia. The emergence of blockchain technology, along with other advances in digital infrastructure has increased the demand for more efficient payments systems which offer greater cost-effectiveness, faster settlement times and improved security when compared to conventional payment methods. This blog post will provide an overview of what CBDC is, why it matters to Australians now more than ever before and dive into some ideas about how we can put this new form of currency into practice in our everyday lives.

The Reserve Bank of Australia’s pilot eAUD program stands out in that it has welcomed industry suggestions, instead of only providing proposed use cases.

The Reserve Bank of Australia has received over 140 use cases for a new Central Bank Digital Currency (CBDC) pilot program from the finance industry. However, the RBA warns that this could displace the Australian dollar and lead to people bypassing traditional banking services altogether.

On December 8th, the Reserve Bank of Australia released a speech by Assistant Governor Brad Jones to be presented at a central bank conference transpiring between December 8 and 9 – in it, Mr. Jones discussed the possible impacts that Central Bank Digital Currency (CBDC) could have on Australia’s economy.

Jones has declared that the RBA was astonished by the huge volume of interest received since they published their white paper on Aug. 9, with over 80 financial institutions submitting potential use cases for a variety of realms including e-commerce, offline and government payments.

As the team spearheading the eAUD program moves forward, sorting through which use cases to prioritise in its pilot phase come early 2021, they are on track to release a report of their project by mid 2023.

Jones brought attention to the risks that an Australian CBDC could potentially expose banks too, such as liquidity problems and other challenges if it were to become the chosen form of storage.

In Australia, deposits from consumer savings accounts now make up more than 60% of total funding for their banks. This means that if enough Australians select a Central Bank Digital Currency (CBDC) over the Australian Dollar, this could potentially leave the banks without sufficient capital to loan out to customers. In turn, this would cause it harder for the Reserve Bank of Australia (RBA) to carry forward its monetary policy effectively.

Jones cautions that the preference of Australians to hold their funds in a ”risk-free” CBDC could result in bank runs, with people pulling out their deposits rapidly.

However, the Assistant Governor believes that CBDCs could also offer Australians many advantages; for instance, privacy benefits – as there is no motivating factor for a central bank to exploit personal data which can be used by private organisations. The development of CBDCs may also protect Australia’s monetary sovereignty in case an outside stablecoin or foreign-issued digital currency fills any void at home.

In addition to raising efficiency and reducing expenses for users, Jones mentioned that offline transactions could fortify the current payment systems. To conclude his speech, he reassured Australians that the Reserve Bank will keep printing banknotes as long as they are seen as a valuable public service.

While some fear that the launch of CBDCs will lead to the elimination of physical banknotes, Nigeria’s recent step towards limiting cash withdrawals on December 6th following their digital currency release emphasises this concern.

Thank you for reading! We hope this article gave you a better understanding into what Central Bank Digital Currency (CBDC) in Australia how it works. Crypto Tax Calculator provides more useful crypto articles, just like this one! Be sure to check out our website for more information about digital currency taxation. Have any questions? Feel free to reach out to us – we would be happy to help!