Key Points
- The Reserve Bank of Australia (RBA) is prioritizing research on wholesale central bank digital currency (CBDC) over retail CBDC, citing more promising benefits and fewer challenges.
- The RBA has announced a three-year applied research program on the future of digital money in Australia, including a new project with industry on wholesale CBDC and tokenized commercial bank deposits.
RBA Shifts Focus to Wholesale CBDC, Announces Three-Year Digital Money Research Program
In a significant development for Australia’s financial landscape, the Reserve Bank of Australia (RBA) has announced a strategic shift in its approach to central bank digital currencies (CBDCs). Assistant Governor Brad Jones, speaking at the Intersekt Conference in Melbourne on September 18, 2024, revealed that the RBA is prioritizing its work on wholesale digital money and infrastructure, including wholesale CBDC, rather than retail CBDC.
Wholesale CBDC Takes Center Stage
The RBA’s decision to focus on wholesale CBDC stems from its assessment that the benefits to the economy are more promising, and the challenges less problematic, compared to a retail version. Jones emphasized that unlike a retail CBDC for public use, a wholesale CBDC represents more of an evolution than a revolution in Australia’s monetary arrangements.
The central bank views wholesale CBDC as a potential enhancement to the existing system of Exchange Settlement (ES) balances, which are already digital and used by financial institutions for settlement purposes. The RBA believes that a wholesale CBDC could support the functioning of tokenized markets and offer greater functionality than current ES balances.
Three-Year Research Program Launched
As part of this strategic shift, the RBA has committed to a three-year applied research program on the future of digital money in Australia. The most immediate priority is the launch of “Project Acacia,” a new initiative focusing on opportunities to improve the efficiency, transparency, and resilience of wholesale markets through tokenized money and new settlement infrastructure.
Jones announced that the RBA, along with research partners at the Digital Finance Cooperative Research Centre, will publish a consultation paper in October 2024, inviting industry engagement on Project Acacia. The research program also includes plans to establish industry and academic CBDC advisory forums, support reforms to the regulatory sandbox for financial innovation, and conduct public engagement on retail CBDC through deliberative workshops.
Retail CBDC: Benefits Uncertain, Challenges Significant
While not ruling out the possibility of a retail CBDC in the future, the RBA currently sees limited benefits and significant challenges in implementing such a system in Australia. Jones noted that many of the arguments made internationally in support of retail CBDCs have limited relevance to Australia or could be addressed through other means.
The RBA’s analysis suggests that a retail CBDC could potentially increase the risk of bank runs, impact bank funding costs, and create challenges for monetary policy implementation and transmission. However, the central bank remains committed to reassessing the merits of a retail CBDC over time, with a follow-up paper planned for 2027.
As Australia navigates the evolving landscape of digital money, the RBA’s focus on wholesale CBDC and commitment to ongoing research and industry collaboration signal a cautious but forward-looking approach to financial innovation. The outcomes of this three-year program could significantly shape the future of Australia’s monetary system in the digital age.
