Many central banks considering blockchain technology
England, Sweden research digital fiat currency, China set to launch digital renminbi
Reserve Bank of Australia examining the role of digital cash issued by a central bank
Source: Cambridge University
Point of View
According to the 2017 Global Blockchain Benchmarking Study, conducted by Cambridge University, 82 per cent of central banks in the study are investigating a range of applications for distributed ledger technology (DLT). Of particular interest is the concept of central bank-issued digital currency (CBDC). A CBDC would be a new form of central bank money with broadly two use cases: a digital alternative to cash; and as another means for settling high-value interbank payments and securities.
The Sveriges Riksbank of Sweden and the Bank of England are each undertaking long-term research into retail CBDCs. The People’s Bank of China has plans to issue its own CBDC, according to a number of reports, including an MIT Technology Review article. This is in contrast to the widely reported recent crackdown on private digital currency exchanges and initial coin offerings by Chinese authorities.
Other central banks have commented on the concept of CBDCs. The European Central Bank (ECB) presents options for providing a CBDC, and discusses what potential impacts a CBDC might have on central bank policy. Deutsche Bundesbank and the Federal Reserve have expressed less-enthusiastic views of CBDCs.
A staff paper published in the BIS Quarterly Review, September 2017 discusses what indeed CBDCs might look like and how they would differ from other types of central bank money. The authors explore the characteristics of retail and wholesale CBDCs and compare these with existing payment options.
Central banks are primarily interested in the impact a CBDC might have on the safety and efficiency of the payments system, financial stability and implications for monetary policy. Therefore, most are, characteristically, taking a cautious approach to CBDCs, including the Reserve Bank of Australia.
The Reserve Bank does not currently have plans to issue a CBDC, but noted in the 2017 Payments System Board Annual Report that “… it will continue to study the technical and policy issues associated with different models of digital cash, as well as the factors that could determine future demand for this type of instrument.” Consistent with this message, the Reserve Bank has expressed interest in becoming an ‘observer’ on an industry project, according to the Australian Financial Review. Led by FinTech Australia, the project will involve testing models for a ‘Digital Australian Dollar’.
In light of this, it will be particularly interesting to hear what Governor, Dr Philip Lowe, has to say on digital currencies in his forthcoming speech – An eAUD? Dr Lowe will be speaking at the Australian Payments Summit, co-hosted by Australian Payments Network, on 13 December 2017.
The opinions and views expressed in this publication are those of the authors exclusively and do not purport to reflect the opinions, views or official policy position of AusPayNet or its members.