If Australia adopts a domestic central bank digital currency it is likely to be used for institutional and corporate transactions, and is much less likely to be used for retail and consumer applications.
This is the picture that emerges from the 14 use cases chosen by the Reserve Bank and the Digital Finance Cooperative Research Centre for the Australian central bank digital currency pilot.
Financial institutions chosen to participate in the trial include ANZ, Commonwealth Bank, Mastercard, Cuscal, Monoova, Australian Bonds Exchange, Canvas Digital, digi.cash, Fame Capital, Unizon and Imperium Markets.
Their projects cover offline payments, tokenised foreign exchange settlement, custody, Web3 commerce, tokenised bills, corporate bond settlements, livestock auctions and automation of goods and services tax lodgement.
RBA assistant governor, financial system, Brad Jones said the pilot would contribute to better understanding of CBDCs by industry and add to policy makers’ understanding of how a CBDC could benefit the financial system and economy.
The RBA and DFCRC will publish a project report at the end of June.
The use case with the clearest consumer application is ANZ’s offline payments project. The idea is to see whether blockchain and NFC-enabled cards could enable users to make payments “in an offline environment that is not connected to existing banking infrastructure”.
Mastercard and Cuscal’s Web3 commerce use case is aimed at individual, as well as business and institutional transactions, but not many consumers are transacting on “crypto ecosystems”.
Projects such as Unizon’s tokenised bills and Canvas’s tokenised FX settlement are pitched at a corporate level.
The pilot CBDC, eAUD, is a general purpose CBDC issued as a liability of the Reserve Bank for use in the “real world applications” of the pilot. eAUD is denominated in Australian dollars and the smallest denomination will be one cent.
No interest will be paid by the RBA on any holdings of eAUD and only Australian registered entities and Australian resident individuals may hold it.
eAUD will be held in a “custodial wallet” provided by pilot participants (“use case providers”) or “non-custodial wallets” held directly by the end user.
It will run on a private blockchain network called Quorum, which is based on Ethereum, and will allow for the development of smart contracts and application program interfaces. It will use the ERC-20 industry standard for fungible tokens on Ethereum, which supports the transfer of tokens from one account to another and calculation of token balances for each account and the total for the network.
The RBA made clear in a CBDC white paper published last year that it is going into the pilot having previously reported that there was “not yet” a compelling case for the issuance of a retail CBDC in Australia. This is based on the existence of an efficient retail payments network and the government guarantee of retail deposits.
The RBA has been involved in a couple of previous trials that suggested asset tokenisation could improve the efficiency, risk management and innovation of wholesale financial market transactions, and reduce the cost and time taken to process cross-border transactions.
Markets where CBDC trials have shown most promise include those where financial inclusion (access to banking services) is low and where the use of cash is in an advanced state of decline. Neither of these conditions applies in Australia.