RBA goes public with digital currency plans

The Reserve Bank of Australia and the Digital Finance Cooperative Research Centre (DFCRC) have released a white paper requesting submissions into a possible Australian central bank digital currency (CBDC).

The white paper is part of the RBA's and DFCRC's ongoing research pilot project to identify a use case for a central bank digital currency (CBDC) in Australia.

In its white paper released on Monday, the RBA said “project intends to test a general-purpose pilot CBDC issued as a liability of the RBA for use in real-world, pilot implementations of services offered by Australian industry participants.” [pdf].

The report added “any compelling use case - whether so-called ‘wholesale’ or ‘retail’ - will be explored in the project”.

As part of its ‘project ecosystem’ the DFCRC will implement the pilot CBDC platform, with the RBA overseeing the issuance and regulatory of the pilot CBDC with restricted access to approved participants.

All participating use case platforms must be Integrated with the pilot CBDC platform via privacy gateway.

It will take place on a private Ethereum (Quorum), using JSON-RPC APIs and smart contract (ERC-20) interfaces.

The pilot CBDC will be called the eAUD and denominated in Australian dollars with the smallest amount totalling one cent.

The white paper said “no interest will be paid by the RBA on any holdings of eAUD” and will be capped at an amount “determined by the RBA”.

As part of the research, only Australian participants and businesses will be able to hold eAUD and “all holders of eAUD will need to be identity-validated by their use case provider or an approved KYC (know-your-customer) service provider”.

The paper added, “eAUD will be able to be held in both a ‘custodial’ wallet (provided by a use case provider) or a ‘noncustodial’ wallet directly by the end user.”

“The eAUD platform is intended to be agnostic to the technologies and networks that use case providers use to interact with it.

“Pilot use cases may be implemented on traditional technology platforms, or public or private Distributed Ledger Technology (DLT) platforms, as may best suit the use case and provider preferences,” the report said.

Deadline for industry expressions of interest closes in October with selected use cases for pilot CBDC by December 2022.

The CBDC pilot will be shut down by April 2023 and finding released “around the middle of 2023”.

Head of payments policy department Ellis Connolly said the central bank does “sees potential for well-designed, well-regulated stablecoins to make a contribution to providing better services for Australian households and businesses.”

However, he noted it’s “really important that we get the regulation of this right” given the high risk in the crypto market. 

In early August the RBA first announced its plans with the government-backed industry group, DFCRC, to identify instances and business models that could be backed by a CBDC and gain a better understanding of its operational requirements.

The DFCRC officially launched late August. It is a 10-year, $180 million program, funded by industry partners, universities and the Australian Government, to examine emerging digital assets.