The Reserve Bank of Australia (RBA) has expressed its willingness to explore the adoption of a central bank digital currency (CBDC) as a potential alternative to traditional currency. If implemented, a CBDC would be a digital token issued by the RBA, representing ownership stakes in its reserves.
During a presentation at the Australian Financial Review Cryptocurrency Summit on October 16, 2023, Brad Jones, the Assistant Governor (Financial System) of the RBA, discussed the prospects and challenges associated with digitizing assets and currency in the modern digital era.
Jones highlighted the potential benefits of asset tokenization in improving efficiency, transparency, and resilience within the financial system. He also pointed out how it could fuel innovation and foster inclusivity.
However, Jones acknowledged that tokenization introduces risks, including regulatory, legal, and operational concerns, and he weighed its implications for monetary policy and financial stability.
He emphasized that stablecoins issued by “well-regulated financial institutions and backed by high-quality assets (i.e., government securities and central bank reserves) could be widely used to settle tokenized transactions.” However, due to the absence of clear regulatory frameworks, stablecoins issued by private entities often carry heightened risks. In contrast, Jones suggested that Central Bank Digital Currencies (CBDCs) represented as tokenized bank deposits could emerge as a secure means of settling transactions.
Jones believes that Central Bank Digital Currencies (CBDCs) could provide a more favorable option for conducting tokenized payments, offering higher levels of security, reliability, and trustworthiness. He highlighted two potential manifestations of CBDCs.
Firstly, they could take the form of tokenized bank deposits, mirroring the conventional process of transferring and settling central bank balances. Additionally, wholesale CBDCs could serve specialized purposes, catering exclusively to a limited set of wholesale market participants.
Jones discussed the RBA’s proactive exploration of Central Bank Digital Currency (CBDC) as a complement to existing forms of currency. He noted that the RBA recently collaborated with industry partners on a joint research initiative to explore potential use cases for a retail CBDC within Australia.
Furthermore, he unveiled plans for the RBA to work in conjunction with other central banks and international organizations to initiate a pilot CBDC project designed for wholesale applications.
Jones concluded his address by underscoring the RBA’s receptivity to considering CBDC as a potential future currency, emphasizing the necessity for further research on how it can best meet the needs and interests of Australians. He also assured that the RBA would persist in monitoring and participating in the ongoing developments in tokenization and digital currencies, both on a domestic and global scale.
