The Reserve Bank of Australia to explore use cases for CBDC

Michele Bullock of the RBA believes that the widespread adoption of CBDC will threaten the future of stablecoins

3 min read

Published: Aug 12, 2022 02:35:45 PM IST

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The Reserve Bank of Australia (RBA) announced that it would develop and launch a 'limited-scale' pilot programme. The pilot will investigate the potential economic benefits and use cases of a central bank digital currency (CBDC). The pilot will be launched in collaboration with the Digital Finance Cooperative Research Centre (DFCRC), an industry group supported by the government. The RBA said in a statement made on Tuesday.

"The project, which is expected to take about a year to complete, will involve the development of a limited-scale CBDC pilot that will operate in a ring-fenced environment for a period of time and is intended to involve a pilot CBDC that is a real claim on the Reserve Bank…Interested industry participants will be invited to develop specific use cases that demonstrate how a CBDC could be used to provide innovative and value-added payment and settlement services to households and businesses."

The CBDC will operate in a ring-fenced environment for the duration of the pilot during the one-year timeline. The pilot's findings will be used to inform ongoing research into the desirability and feasibility of a CBDC in Australia. The project will aim to identify innovative use cases for a state-issued digital currency as well as business models that could be supported by a CBDC, in addition to clarifying certain legal, regulatory, and technological aspects.

The RBA and the DFCRC will select a variety of use cases for the pilot based on their potential to provide insights into the potential benefits of a CBDC. Michele Bullock, the deputy governor of the Reserve Bank, stated:

"This project is an important next step in our research on CBDC. We are looking forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia."

Earlier in 2020, the RBA announced its intention to investigate the possibility of a CBDC by developing a proof-of-concept (POC) for the issuance of a tokenised digital dollar for wholesale market use. According to Andreas Furche, CEO of the DFCRC, the main concerns about CBDCs are about how useful they could be and in what ways. The Australian Treasury will join the two institutions as a member of the project's steering committee.

Bullock believes that widespread CBDC adoption could jeopardise the future of stablecoins, which are supposed to be pegged to sovereign currencies. According to her,

"It does mean that the role of stablecoins might change in a world where there are central bank digital currencies because central bank digital currencies will basically give a credit-risk-free asset because they're backed by the central bank."

She went on to say that while people already have a variety of safe, fast, and low-cost electronic payment options, a CBDC could be useful in some niche areas.

Shashank is founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist.