Last week the Reserve Bank of Australia (RBA) released its report on the CBDC research project which it conducted with the Digital Finance Cooperative Research Centre (see here). The project entailed the trial of relevant use cases in a live transactional environment, making use of CBDC issued by the RBA that carries a real legal claim on the RBA. The trial, which took place between March and July this year, set out to understand the value of a CBDC to the Australia economy and payments systems.
To ensure that the trial produced useful results, it was conducted using legitimate applications of a pilot CBDC. To achieve this, some of the key features of this trial's methodology included the use of Ethereum-based distributed ledger technology and a requirement on participants to be appropriately licensed and meet necessary regulatory requirements. CBDC holders were also enabled to directly control the CBDC without intermediaries.
The trial involved 16 use cases (chosen from 110 submissions) run by participants spanning fintechs to large financial institutions. Of the submissions, the following were deemed the four key themes for the value of a CBDC:
- enabling smarter payments;
- supporting innovation in financial and other asset markets;
- promoting private digital money innovation; and
- enhancing resilience and inclusion in the digital economy.
The trial observed benefits in efficiency and resilience in the payments and settlement systems. The potential for atomic settlements to increase efficiency in larger transactions seems to be a major positive finding of the trial. Atomic settlements involve the instantaneous transfer of funds while, simultaneously, transferring asset titles at the same time (likely to occur on the same distributed ledger and greatly reduce settlement risk). Such capabilities can change the way markets function (which is currently T + multiple days).
Despite the positive findings, the conclusions suggest that the use of an Australian CBDC is "still some years away". There are many questions to answer, including those relating to the actual technology (such as the limitations to impose), the regulatory frameworks (given that new business models will emerge from the widespread use of CBDCs for large scale settlements), and the legal basis and claims relating to the use of a CBDC.
Ultimately, it seems that the RBA sees the greatest benefits of a CBDC in the wholesale and institutional markets. It is clear that many valuable lessons were learnt in this trial that sought to determine the broader policy rationale for a CBDC in Australia.
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