July 24, 2024
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Australian CBDC Receives Unexpected Interest but Could Hurt Banks: RBA

The Reserve Bank of Australia’s pilot “eAUD” program is unique in that the Reserve Bank has not proposed use cases and has instead received numerous suggestions from the industry.

The finance industry has submitted more than 140 use case proposals to an Australian Central Bank Digital Currency (CBDC) pilot program, but the Reserve Bank of Australia (RBA) warns that it could displace the Australian dollar and cause people to avoid commercial banks entirely.

On December 8, the RBA released a speech to be given by Assistant Governor Brad Jones at a central bank conference held from December 8 to December 9 local time, in which Jones speaks at length about the impact of a CBDC on the Australian economy.

According to Jones, the RBA has been surprised by the industry interest they have received since releasing a white paper on August 9, with over 80 financial entities proposing use-cases covering a wide range of areas such as e-commerce, offline payments, and government payments.

The team working on the pilot “eAUD” program is deciding which of the proposed use cases to pilot early next year and plans to publish a report on the project in the middle of 2023.

Jones also discusses the potential risks associated with an Australian CBDC, pointing to liquidity concerns and other issues that banks may face if a CBDC becomes their preferred source of holdings.

For example, with deposits from Australian residents, such as savings accounts, now accounting for more than 60% of total funding for their banks, a sufficient number of Australians choosing a CBDC over the Australian dollar could result in banks not having enough capital to lend to consumers, making it more difficult for the RBA to transmit monetary policy, he said.

Jones also points out that Australians preferring to keep their funds in a “risk-free” CBDC may result in bank runs, with Australians withdrawing deposits in large numbers.

Related: A report explains why stakeholders are opposed to CBDC.

However, the Assistant Governor believes CBDCs could provide many benefits to Australians, including privacy benefits (arguing that the central bank has no incentive to use personal data that can be exploited by private organizations) and helping to safeguard monetary sovereignty, which could be lost if a stablecoin or foreign CBDC fills a domestic vacuum).

He also mentions the potential for offline transactions to improve the resilience of existing payment systems, as well as increase efficiency and provide cost savings for end users.

Jones concluded his speech by saying that Australians can be confident that the Reserve Bank will continue to print banknotes “for as long as they value them as a public good.”

Critics are frequently concerned that the introduction of CBDCs will result in the phasing out of banknotes, a concern validated by Nigeria’s decision to further limit cash withdrawals on December 6 following the issuance of the eNaira.