Australia’s Central Bank says that Its CBDC Will Be Useful for Payments and Tokenization
In the latest development, Australia’s central bank completed the pilot of its central bank digital currency (CBDC) while exploring the use case of its CBDC into four areas that involves complex payments and asset tokenization.
On August 23, the Reserve Bank of Australia and the Digital Finance Cooperative Research Centre released a 44-page report containing their discoveries. The report also outlined various instances where a Central Bank Digital Currency (CBDC) wasn't the sole necessity to fulfill the intended purpose.
The pilot program highlighted four key aspects that could benefit from a CBDC. These include facilitating more sophisticated payment methods, where a tokenized CBDC allows for a variety of intricate payment arrangements that aren't currently accommodated by existing payment systems.
Furthermore, the report provided insights that a CBDC might lend support to financial innovation in areas like debt securities markets. It could also stimulate innovation within emerging sectors of private digital money and contribute to enhancing resilience and inclusivity in the broader digital economy.
Numerous submissions from the 16 participating firms in the pilot program emphasized the potential advantages of a CBDC in facilitating "atomic settlements," which refer to transaction settlements that are both instantaneous and simultaneous.
The concept of programmability was also noted as a potential enhancement that a CBDC could introduce, as it has the potential to "enhance efficiency and reduce risk in various intricate business processes.”
The CBDC pilot initiative was structured as a tangible legal claim on the Reserve Bank of Australia, rather than being a mere proof-of-concept. This approach led to uncertainties regarding its legal status and regulatory treatment among the participants.
The report stated: “Some participants were uncertain if they were providing custody services or dealing in a regulated financial product because of holding or dealing in the pilot CBDC. These issues would ideally be anticipated and resolved in any legal and regulatory reforms that accompany the issuance of a CBDC.”
While the report highlighted potential areas where a CBDC could find utility, it also acknowledged that numerous advantages could be attained through alternative means, such as utilizing privately issued tokenized bank deposits or asset-backed stablecoins.
The report stated, "It was not evident that CBDC was the sole necessity for accomplishing the intended economic objectives." In essence, the report emphasized that there are alternative approaches that could potentially yield similar results.
In conclusion, the report indicated that while the introduction of a CBDC might enhance efficiency and resilience in specific segments of the Australian payments ecosystem, further research is essential to comprehensively explore and understand the potential benefits it might offer.