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The Reserve Bank of Australia (RBA) has expressed its willingness to explore the potential use of a central bank digital currency (CBDC) as an alternative form of money in the future. If implemented, a CBDC would be a digital token issued by the RBA that represents ownership claims on its reserves.
During a speech at the Australian Financial Review Cryptocurrency Summit on October 16, 2023, Brad Jones, the assistant governor (Financial System) of the RBA, discussed the opportunities and challenges that arise from tokenising assets and money in the digital age.
Jones emphasized the potential benefits of tokenization in enhancing efficiency, transparency, and resilience within the financial system. Furthermore, he highlighted how asset tokenization services could foster innovation and promote inclusion.
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However, Jones acknowledged that tokenisation also brings risks, such as regulatory, legal, and operational issues, while considering its implications for monetary policy and financial stability.
The Role of Stablecoins and CBDCs
Jones suggests that regulated financial institutions issuing stablecoins backed by quality assets may become widely used for tokenized transactions.
“Stablecoins issued by well-regulated financial institutions and that are backed by high-quality assets (i.e., government securities and central bank reserves) could be widely used to settle tokenized transactions.”
However, he also emphasized the potential risks posed by privately issued unstable stablecoins lacking proper regulation and support – both to users and the overall financial system.
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Jones proposes that Central Bank Digital Currencies CBDCs could serve as a preferable alternative for tokenized payments. According to him, CBDCs would enhanced levels of security, dependability, and trustworthiness. He also pointed out two possible forms of CBDCs.
Firstly, they could manifest as tokenized bank deposits resembling the established practice of exchanging and settling central bank balances. Additionally, wholesale CBDCs could exist solely for specific purposes, catering to a limited group of wholesale market participants.
The RBA’s Research on CBDC
Jones shared the RBA’s active exploration of CBDC as a complement to existing forms of money. He mentioned that the RBA recently conducted a joint research project with industry partners to examine potential use cases for a retail CBDC in Australia.
Additionally, he revealed plans for the RBA to collaborate with other central banks and international organizations in launching a pilot CBDC project for wholesale use.
Jones concluded his speech by highlighting the RBA’s openness towards considering CBDC as the future of money, emphasizing the need for further study on how it can best cater to Australians’ needs and interests. Lastly, he assured that the RBA will continue to monitor and engage with tokenization and digital currency developments both domestically and globally.
Read Also: Mastercard and Australia’s RBA Triumph in Wrapped CBDC Trial
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