RBA in process to explore potential use cases and economic benefits of CBDC

Key Takeaways:

• RBA is collaborating with DFCRC on a research project to explore possible use cases and economic benefits of CBDC.
• RBA has invited 14 members to this pilot program.
• In 2022, the Australian Government highlighted its plan to modernise the Australian Financial System in 2023 and beyond.

Reserve Bank of Australia (RBA) has announced the use case proposals, along with their providers, to take part in the live pilot, which will take place over the coming months. A wide range of entities in the Australian financial system, from smaller FinTechs to big financial institutions, are invited to take part in this pilot and research study. This pilot and broader research study will be conducted in parallel and will:

1. Help policymakers to understand the way CBDC could possibly benefit the Australian financial system and economy.

2. Contribute to hands-on learning by industry.

Earlier in 2022, RBA announced that it would be working with the Digital Finance Cooperative Research Centre (DFCRC) on a research project to discover possible use cases and economic benefits of a central bank digital currency (CBDC) in Australia. In this project, designated industry participants will reveal possible use cases for a CBDC using a limited-scale pilot CBDC that is a real digital claim on the Reserve Bank.

Below is the list of participants invited by RBA to participate in the pilot.

Program Director- CBDC with the DFCRC, Dilip Rao, said that various use cases proposed cover several difficulties that can possibly be addressed by CBDC. One amongst them is using CBDC for atomic settlement of transactions in tokenised assets.

The process of validating use cases with the industry participants will help understand the requirement for additional research into design considerations for a CBDC that can play a role.

More About Australian CBDC Pilot for Digital Finance Innovation:

The white paper on the Australian CBDC Pilot for Digital Finance Innovation was released on 26 September 2022. This white paper explains the purposes as well as method of the project in more detail, including the design of the pilot CBDC that will be utilised by industry participants to explore use cases for a CBDC.

The Pilot CBDC aims to have the following attributes and constraints:

1. The pilot CBDC will be called the eAUD.

2. eAUD will be a liability of the RBA and denominated in Australian dollars. The smallest denomination will be one cent.

3. The amount of eAUD issued will be capped at an amount that will be decided by the RBA, seeing the requirements of the selected use case provider.

4. RBA will not pay any interest on any holdings of eAUD.

5. Only Australian-registered entities and Australian resident individuals may hold eAUD.

6. The end users of eAUD should be identity-validated by their use case provider or KYC service provider.

7. End-users can hold eAUD in a ‘custodial’ and ‘noncustodial’ wallet.

Need for introducing eAUD:

On 14 December 2022, the Australian Government announced that it is modernising the country’s financial system. Through this modernisation, the Government could embrace new economic opportunities and respond to future challenges. In 2023, the Government will:

• Update and strengthen the country’s payments system;
• Reinforce the financial market infrastructure;
• Establish a regulatory framework for BNPL (Buy Now Pay Later)
• Establish a structure for the licensing & regulation of crypto service providers.

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