The bank’s internal innovation laboratory examines the potential of a Central Bank Digital Currency: the digital Australian dollar.
Ethereum is still one of the most used blockchains for developing cryptocurrencies, which is evidenced by this information. The Reserve Bank of Australia (RBA) conducts digital currency experiments based on Ethereum and seeks opportunities for third parties to participate.
It was reported that, although there are risks associated with a “digital Australian dollar,” the RBA is exploring whether there is potential value in developing a digital currency that can be used by wholesale participants in the payment sector.
According to the publication, the RBA says that there is currently no reason to create a Central Bank Digital Currency (CBDC), but it can still take advantage of blockchain technology for its domestic use.
In a submission to the Senate Select Committee on Financial Technology and Regulatory Technology, the bank said that there may be very little demand for a CBDC among consumers since the banking system is quite stable in Australia.
However, it maintains that, in times of uncertainty, such a digital currency could facilitate bank runs. Besides, its widespread adoption could lead to a drop in bank deposits, which would reduce the number of available funds for domestic and commercial loans.
Australian Digital Dollar
Despite the previous opinion, the central bank’s internal innovation laboratory is examining the potential of an Australian CBDC, specifically in the context of wholesale liquidation.
According to the RBA, the laboratory used a private and authorized Ethereum network for the project, pretending to be a central bank that issued tokens to commercial banks, as well as tokens that are exchanged between banks and eventually exchanged with the central bank.
The RBA believes that a national digital currency “fully integrated” into a blockchain platform could allow 24/7 payments between participants without relying on an external payment system. Other benefits include facilitating the so-called “programmable money” and “atomic transactions,” which only allow a transaction to be made if all parts of exchange are executed.
It should be clarified that this experiment does not mean that the Australian central bank is crypto friendly. Up to the present, the bank has said that cryptocurrencies “do not provide the usual functions of money.” However, it considers that emerging cryptocurrencies seek to address some failures, such as price volatility.
Support to Libra
The RBA has said that Libra will be different from existing cryptocurrencies since it will be backed by a reserve of assets comprised of a basket of bank deposits and short-term government securities denominated in a variety of fiat currencies. This aims to boost confidence in the cryptocurrency and reduce price volatility, although the value of Libra will still fluctuate concerning other currencies.
The bank also clarified that it agreed with the Group of 7 (G7) in that the launch of global stablecoins should not be allowed until the risks related to consumer/investor protection, data privacy, monetary policy, and financial stability are addressed.
The Reserve Bank added that it is working closely with the relevant agencies at the national and international levels to understand recent proposals and ensure that they will be properly regulated and supervised.
By Willmen Blanco