Future of money: The RBA to trial a digital currency

The Reserve Bank of Australia will trial a digital currency in a “ring-fenced” pilot program as part of a collaborative research project into how it could be used by consumers and businesses that is set to last about a year.

Australia’s central bank has previously declared its interest in digital currency, which could be a digital equivalent of the dollar and rival privately minted cryptocurrencies, but the research project announced by the bank on Tuesday with the Digital Finance Cooperative Research Centre would focus on how such an asset could actually be used.

The RBA is collaborating on a research project into the use of a central bank digital currency.Credit:Louie Douvis

The research centre’s chief executive Andreas Furche, whose organisation is a product of industry, university and government collaboration, said it had already been proven that a central bank digital currency was technically feasible. “The key research questions now are what economic benefits a CBDC (central bank digital currency) could enable, and how it could be designed to maximise those benefits,” Furche said.

In a media release, the Reserve Bank said previous research from central banks around the world had gone into questions such as how the distributed ledger technology that is a hallmark of cryptocurrencies could be used for an RBA-backed currency.

But Michele Bullock, the RBA’s deputy governor, said Tuesday’s project was the next step in its research. “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,” Bullock said.

The project would involve a “ring-fenced environment” in which a pilot digital currency would be used that had a real claim on the Reserve Bank. Participants selected by the bank and research centre will develop projects that demonstrate how the digital currency could be used to assist businesses and households within that framework. A report will be published at the end.

China has explored the use of a digital currency, with the use of the e-CNY being gradually expanded.Credit:AP

RBA governor Philip Lowe has previously warned that a risk of a central bank digital currency is that it could cause bank runs if jittery consumers use it to withdraw wealth from commercial banks and park it with the RBA in a crisis.

Privately minted cryptocurrencies have fared poorly this year, with even some that are intended to be pegged stably to the US dollar being wiped out.

Part of the research project will consider regulatory, technical and legal issues associated with a central bank digital currency.

China and the Bahamas’ central banks have both explored the use of a digital currency, with the use of the e-CNY being gradually expanded.

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