Reserve Bank of Australia releases Australian CBDC pilot for digital finance innovation White Paper

The Reserve Bank of Australia (RBA) is actively researching central bank digital currency (CBDC) as a complement to existing forms of money.

The RBA currently issues two forms of money:

1. physical money in the form of banknotes, which can be used by households and businesses to make payments, and

2. digital money in the form of balances held in accounts that commercial banks and some other types of financial institutions can hold at the Reserve Bank to settle payment obligations between each other.

QUICK FACTS IN CBDC WHITE PAPER

1. The pilot CBDC will be called the eAUD.

2. The eAUD will be a liability of the RBA and denominated in Australian dollars.

3. The smallest denomination will be one cent.

4. The amount of eAUD issued will be capped at an amount to be determined by the RBA considering the requirements of selected use case providers.

5. No interest will be paid by the RBA on any holdings of eAUD.

6. Only Australian-registered entities and Australian resident individuals may hold eAUD.

7. All (end user) holders of eAUD will need to be invited for participation in the project by an approved use case provider.

8. All holders of eAUD will need to be identity-validated by their use case provider or an approved KYC (know-your-customer) service provider. eAUD will be able to be held in both a ‘custodial’ wallet (provided by a use case provider) or a ‘noncustodial’ wallet directly by the end user.

The CBDC would be a new digital form of money issued by the RBA. It could be designed for retail (or general purpose) use, which would be like a digital version of banknotes that is essentially universally accessible, or for wholesale use, where it is accessible only to a more limited range of wholesale market participants for use in wholesale payment and settlement systems.

The CBDC could potentially support a number of the RBA's policy objectives, including safeguarding public trust in money and promoting efficiency, safety, resilience and innovation in payment systems and financial market infrastructures. The unintended consequences of a CBDC have not yet been fully detailed, though industry participants and stakeholders are invited to contribute.

The RBA's research has been looking at various possible use cases, exploring the potential benefits, opportunities and challenges associated with CBDC, and examining how a CBDC could be designed and developed if a decision was ever taken to implement one.

WHITE PAPER FURTHER OBSERVATIONS

The White Paper notes that The RBA’s research into CBDC does not reflect any intention to discontinue access to physical cash. It further stipulates the RBA is committed to ensuring Australians continue to have good access to physical cash for as long as people need or want to use it.

Timeframe

The projected CBDC project timeline is as follows:

Interestingly, the project is not evaluating the technology most suited to operating a CBDC. The CBDC pilot platform to be implemented is designed to be adequate for the use cases selected but is not intended to reflect the kind of technology that might be used to implement a CBDC, if a decision was ever made to do so. This indicates there may be diametrically distinct technology used as the infrastructure layer for the CBDC, to that of conventional cryptocurrencies. This is further implied by the fact that use case providers will not be permitted to deploy any code or smart contracts on the pilot CBDC platform. KYC providers will attest that holders of pilot CBDC have been identity-verified via an interface into the pilot CBDC platform.

As a central bank, the RBA will be responsible for the issuance of eAUD, while the Digital Finance Cooperative Research Centre (DFCRC) will oversee the development and installation of the eAUD platform. Industry participants can join the pilot as use case providers once approved for implementation.

The white paper suggests the use of Ether (ETH) to pilot participants and that “Pilot participants will bear their own costs for the conception, design, development, implementation and piloting of use cases..."

On 6 September 2022, Australia’s ministerial department of Treasury approached the general public for their opinion on taxing cryptocurrencies. Assistant Treasurer Stephen Jones revealed the intention to exclude crypto assets from being taxed as a foreign currency.

Australian investors were provided with a window of 25 days to share their opinion on this decision, which expires on 30 September 2022. The legislation, if signed into law, will amend the existing definition of digital currency in the Goods and Services Tax (GST) Act to exclude it as a foreign asset.