Australia Central Bank to Focus on Wholesale CBDC Rather Than Retail

Highlights:

• Australia’s central bank is prioritizing the development of a wholesale CBDC over a retail version.
• RBA’s three-year Project Acacia will explore wholesale CBDCs and tokenized bank deposits.
• The global trend towards CBDCs highlights the RBA’s strategic alignment with international developments.

Australia’s central bank, the Reserve Bank of Australia (RBA), has decided to prioritize the development of a wholesale central bank digital currency (CBDC), citing greater economic benefits and fewer challenges compared to a retail version. In a September 18 speech at the Intersekt Fintech Conference in Melbourne, RBA Assistant Governor Brad Jones announced Project Acacia’s launch, a three-year roadmap centered on developing a wholesale CBDC.

Jones stated that RBA research indicated a retail CBDC would not benefit the Australian public significantly. Instead, the focus will be on developing a wholesale CBDC. This approach promises to reduce counterparty and operational risks, enhance transparency and auditability, and lower costs related to intermediaries and compliance through tokenized money and advanced settlement systems.

He added that the potential benefits of a retail CBDC seemed “modest or uncertain” for the Australian public. A retail version would introduce several challenges, such as higher borrowing costs, increased risk of bank runs, and difficulties in implementing relevant monetary policy.

Jones said:

“I can confirm that the RBA is making a strategic commitment to prioritize its work agenda on wholesale digital money and infrastructure – including wholesale CBDC – rather than retail CBDC.”

Jones explained that the central bank’s “top priority” is to initiate the public phase of Project Acacia, focusing on wholesale CBDCs and tokenized bank deposits. This project will build on prior research and look into future cross-border applications with regional central banks. 

Speech by Brad Jones, Assistant Governor (Financial System), at the Intersekt Conference in Melbourne – 'Financial Innovation and the Future of CBDC in Australia’: https://t.co/zuYTeslJhZ pic.twitter.com/3ndAbgjepq

— Reserve Bank of Australia (@RBAInfo) September 17, 2024

RBA to Release Consultation Paper and Launch CBDC Advisory Forums

In October, the RBA and its research partners will publish a consultation paper to collect industry feedback. Additionally, the RBA announced the formation of CBDC advisory forums for industry and academia, set to launch in early 2025. These forums will tackle issues related to both retail and wholesale CBDCs.

He stated:

“These forums would play a similar role to those the RBA has convened in recent years with economists from industry and academia, to hear different views on monetary policy issues.”

RBA Researches Asset Tokenization and Blockchain Impact on Financial Operations

Jones also mentioned that the RBA is researching the potential benefits of asset tokenization and the impact of blockchain and smart contract technology on the central bank’s financial operations.

Jones said:

“The programmability of tokens via smart contracts, and the ability to free up collateral and reduce counterparty risk by atomically exchanging money and assets on the same ledger, have been of particular interest in experimental research.”

Globally, 134 countries, representing 98% of the world’s GDP, are exploring central bank digital currencies, with 66 countries already in advanced stages of development or pilot testing. The RBA’s new focus on issuing and promoting wholesale CBDCs is a strategic move to enhance financial stability and efficiency. This shift prioritizes substantial economic benefits over minor differences in the retail market.