RBA collaboration unveils the potential of a wholesale CBDC

  • By Zilla Efrat

A high-level research project reveals the potential for a wholesale central bank digital currency (CBDC) and asset tokenisation to improve efficiency, risk management and innovation in wholesale financial market transactions,

Called Project Atom, it involved a collaboration between the Reserve Bank of Australia, Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys.

It was undertaken over the past year and examined the potential use and implications of a wholesale form of CBDC using distributed ledger technology (DLT). The project involved the development of a proof-of-concept (POC) for the issuance or a tokenised form of CBDC that could be used by wholesale market participants for the funding, settlement and repayment or a tokenised syndicated loan on ar
Ethereum-based DLT platform,

The project explored several issues, including how access to a CBDC could be extended to a wide range of wholesale market participants, including those that would not ordinarily have access to accounts at the RBA.

It also examined the potential benefits of integrating a wholesale CBDC with tokenised assets on interoperable DLT platforms and whether an enterprise-grade DLT platform could be a viable technology tor a wholesale CBDC.

The RBA says the POC demonstrated that the digitisation of syndicated loans on a DLT platform could provide efficiency gains and reduce operational risk by replacing highly manual and paper-based processes. Integrating a wholesale CBDC on the same DLT platform enabled "atomic" delivery-versus- payment settlement of the drawdown, novation and repayment of the tokenised syndicated loan, and
could potentially allow tor other forms of programmability that could improve efticiency and reduce risk in transactions

The POC also revealed that an enterprise-grade DLT plattorm with appropriate controls on access and security could address many of the potential requirements for a wholesale CBDC system and tokenised assets platform.

RBA Assistant Governor (Financial System) Michelle Bullock says the project also validate the benefits of collaboration in advancing knowledge in this area.

The RBAs banking partners agree

CBA's group executive for Institutional Banking & Markets, Andrew Hinchliff, says: "We believe the use of DLT will continue to grow and see it playing a signiticant role in Australias payments system in the years ahead.

"As Australia's biggest bank we have an important part to play in its evolution and we look forward to an ongoing partnership with the RBA and broader industry on this important program of work."

NAB group executive, Corporate & Institutional Banking, David Gall believes finding new ways of fast and easy access to funds is critical for NAB customers.

"The project involved the development of a POC into the practical application of blockchain technology and asset tokenisation that is helping us shape the future of finance he says.

"The results showed these technologies made loan syndication for our larger business customers easier and taster and removed friction points. We also saw efficiency gains and reduced operational risk by replacing hignly manual and paper-based processes.

"This is really important to help our larger business customers grow, particularly when they operate across multiple jurisdictions and markets

"We look forward to continuing to work closely with the RBA and industry peers to help give Australian businesses the boost they need to bounce back from the pandemic

The report on the study notes that many central banks are currently researching the potential benefits and other implications of issuing CBDC as a complement to existing forms of money.

"In most economies, including Australia, the bulk of money already exists in digital form as deposits with commercial banks, which are used by housenolds and businesses to make payments using a variety of electronic pavment services, it says.

"Central banks also provide digital money in the form of balances held in accounts that commercial banks and a few other types of financial institutions can hold at the central bank to settle payment obligations between each other.

Up until now, the only form of central bank-issued money that is universally accessible is physical money in the form of banknotes (i.e. cash).

However, the report on the study notes that a CBDC could be a new digital form of money issued by, and theretore a direct liability of, a central bank. 

"It could be designed for retail (or general purpose) use, which would be like a digital version or cash that is essentiallv universally accessible. or for wholesale use, where it is accessible only to a more limited range of wholesale market participants (such as financial institutions and large corporates, for example tor use in wholesale payment and settlement systems," the report notes.