The Reserve Bank is getting involved in a second central bank digital currency project in a year, shifting its focus on this occasion to the domestic market.
The RBA announced that it will work with the Digital Finance Cooperative Research Centre, a program funded by industry, universities and government, to explore use cases for a CBDC in Australia.
The project will focus on the scope for innovative use cases and business models that could be supported by the issuance of CBDCs.
“The project will also be an opportunity to further understanding of some of the technological, legal and regulatory considerations associated with CBDCs,” the RBA said.
The RBA currently issues two forms of money: physical money in the form of banknotes; and digital money in the form of balances held in accounts that commercial banks and some other types of financial institutions can hold at the RBA to settle payment obligations between each other.
It defines CBDC as a new form of digital money that could be designed for retail use, like a digital version of banknotes; or for wholesale use, where it could be used by a limited group of market participants for wholesale payments and settlements.
In March, a group of central banks including the RBA released the findings of a trial that used a shared platform to complete international settlements using multiple central bank digital currencies.
The trial, Project Dunbar, involved the Bank for International Settlements Innovation Hub, Bank Negara Malaysia, the Monetary Authority of Singapore, the South African Reserve Bank and the RBA.
The RBA said: “Project Dunbar proved that financial institutions could use CBDCs issued by participating central banks to transact directly with each other on a shared platform.
“This has the potential to reduce reliance on intermediaries and, correspondingly, the costs and time taken to process cross-border payments.”
Unlike domestic payments, where banks can pay each other directly on a single national payments platform, there is currently no single international platform for cross-border payments and settlements. The view of the project participants is that this model is fragmented, slow, opaque and expensive, compared with domestic payments.
The RBA said the latest project would look at possible use cases for CBDCs in a domestic setting, where there is already modern and well-functioning payment and settlement systems.
The project will take about a year and will involve the development of a small-scale CBDC pilot that will operate in a ring-fenced environment. Industry participants will be invited to develop use cases.
Treasury will participate in the project as a member of the steering committee.