The Reserve Bank of Australia (RBA) published a whitepaper for its pilot central bank digital currency (CBDC) on Sept. 26, entering the league of countries exploring CBDCs. According to the Atlantic Council CBDC tracker, Australia is among 97 countries that have either launched their CBDCs or are currently engaged in research and development and conducting pilot projects.
The RBA published the whitepaper in association with the Digital Finance Cooperative Research Centre (DFCRC), a $180 million research program partially funded by the Australian government.
According to the whitepaper, the purpose of the pilot project is to explore innovative use cases, both retail and wholesale, and business models that could benefit from a CBDC. The project started in July this year and is expected to be completed by mid-2023.
The DFCRC will provide the platform for the CBDC while the RBA will handle the issuance and redemption of the pilot CBDC in addition to providing regulatory oversight. This main platform will be responsible for managing and tracking the pilot CBDC, eAUD.
CBDC use cases will be tested by industry participants, who would have to design and operate their own technology platforms to implement the approved use cases. However, industry participants will not be allowed to use any “code or smart contracts” on the CBDC platform, according to the whitepaper.
The platforms developed by the participants will be integrated with the pilot CBDC platform via a privacy gateway. These participants would then offer services that utilize the pilot CBDC through their own platforms. The participants will be responsible for know-your-customer (KYC) verifications of the CBDC end users, as per the whitepaper.
The eAUD platform will be developed and installed on a private, permissioned version of Ethereum. Therefore, its ledger will be centralized with the RBA at the helm. Access to the platform will be restricted to the selected use case providers and their authorized end users.
The eAUD will be issued as a liability of the RBA and denominated in Australian dollars. The RBA will not provide any interest on eAUD, which can be stored in custodial wallets provided by use case providers or non-custodial wallets owned directly by the user.
Use case providers are also liable for ensuring compliance with all regulatory guidelines, as well as the costs of piloting.
At the end of the pilot project, which is scheduled to shut down in April 2023, the RBA and DFCRC will publish a report on the findings, including an evaluation of the developed use cases.
Primarily, the pilot project aims to identify the different use cases that stand to benefit from CBDCs and the economic benefits of an Australian CBDC. The project will also explore the policy and regulatory issues associated with the operation of a CBDC. The idea is to identify a “rationale” for a CBDC. In other words, the project seeks to answer the question of whether the country really needs a CBDC.
Australia’s changed stance on CBDC
In 2020, the RBA found that there was no compelling case for issuing a retail CBDC in Australia. But, between 2020 and 2021, the RBA participated in ‘Project Atom’ alongside the Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Perpetual, and ConsenSys. The proof-of-concept CBDC developed in Project Atom demonstrated the potential benefits of a wholesale CBDC.
The RBA also participated in Project Dunbar with the Bank for International Settlements (BIS) Innovation Hub and other central banks. Project Dunbar indicated that CBDCs can cut down cost and time taken to process cross-border transactions.
Therefore, along with the eAUD pilot project, the RBA is also looking into the role of privately issued and regulated stablecoins in the future economy.