RBA yet to see a strong case for an eAUD

  • By Zilla Efrat

The Reserve Bank of Australia was open to the possibility of a retail central bank digital currency (CBDC) or eAUD but had not yet seen a strong public policy case to move in this direction, RBA Governor Philip Lowe said yesterday.

In an online address to the Australian Payments Network Summit 2021, he said digital wallets could, in the future, provide access to new token or account-based digital forms of money, enabling day-to-day payments to be made by moving tokens around instead of cash or bank transfers.

But he added: “How far we go in this direction and what form these tokens might take are yet to be determined.”

He noted that one option was for the tokens to be issued by, and backed by, the RBA in the same way the RBA issued and backed Australian dollar banknotes. “This would be a form of retail CBDC or an eAUD,” he noted.

“I have said previously that the RBA is open to this possibility. To date, though, we have not seen a strong public policy case to move in this direction, especially given Australia's efficient, fast and convenient electronic payments system.

“It is possible, however, that the public policy case could emerge quite quickly as technology evolves and consumer preferences change. It is also possible that these tokens could offer a lower-cost solution for some types of payments than provided by the existing technologies.”

Lowe said the RBA continued to examine the case for a retail CBDC and was collaborating with other central banks on this issue. It also planned to work with Australia's new Digital Finance Cooperative Research Centre and Treasury in this area.

Another possibility, according to Lowe, was that payment tokens could be issued and backed by an entity other than the central bank, though still denominated in Australian dollars. These could be a form of stablecoin.

“If this is how the system develops, it will be important that these tokens are backed by high-quality assets and that they meet high standards for safety and security,” said Lowe.

He noted that a lesson from history was that privately issued and backed money all too often ended in financial instability and losses for consumers. “This is one reason why national currencies are today ultimately backed by the state,” he said.

“So if privately issued stablecoins are ultimately the way things head, it will be crucial that they meet very high standards. And if there were to be multiple stablecoins, there would be advantages in them being interoperable. The RBA is working with domestic regulators and our counterparts around the world on the policy issues here.”

A third type of potential digital token was a cryptocurrency, not linked directly to the Australian dollar or backed by a particular entity or assets.

But Lowe said he remained sceptical that we would head in this direction for general purpose payments. “It is likely that the asset used for the settlement of most transactions in the economy will remain some

form of secure fiat currency with a stable value, rather than cryptocurrency with a volatile price,” he said.

“That is not to say there is no role for crypto-assets. They can help support innovation, especially where they are linked to smart contracts and used in decentralised finance (or DeFi) applications. There is value in experimentation to find out what works and what doesn't.

“But as the experiments are conducted, it is also worth considering whether the benefits of smart contracts and DeFi can be gained with some form of stablecoin or a CBDC, rather than a new unit of account with a volatile price.”