In the history of economies, technological innovations have always had a significant impact on societies. From the introduction of paper money to the electronification of securities, these innovations have shaped our financial systems. Today, with rapid technological advancements, the financial economy is once again at a crossroads, prompting questions about the suitability of our monetary arrangements in the digital age.
At a recent forum, the RBA and Treasury released their joint paper on central bank digital currency (CBDC) and the future of digital money in Australia. The focus is on wholesale digital money and infrastructure, rather than retail CBDC. This strategic decision recognizes the stabilizing role of central bank money in wholesale market transactions, particularly in systemically important markets.
The RBA is embarking on a three-year research program to explore the potential of digital money in Australia. This includes a project on wholesale CBDC and tokenized commercial bank deposits to understand how new ledger arrangements could benefit the financial system. While the benefits of a retail CBDC seem modest at present, the RBA and Treasury remain open to reassessing the merits over time.
The potential introduction of a retail CBDC in Australia raises important considerations. While some argue for offline resilience and monetary sovereignty, the current digital payment landscape in Australia already offers efficiency and safety. Privacy, efficiency, and financial inclusion are also key factors to consider in the debate over a retail CBDC.
On the other hand, wholesale CBDCs offer opportunities to enhance existing wholesale markets through innovations in digital money and settlement infrastructure. Central banks are exploring ways to improve liquidity, transparency, and efficiency in wholesale markets through tokenization and new ledger technologies.
The decision to issue a CBDC, whether retail or wholesale, would ultimately involve close consultation between the RBA, Treasury, and the Australian Government. Legislative changes may be necessary to support the issuance of a CBDC, depending on the design and scope of the digital currency.
In conclusion, while the benefits of a retail CBDC in Australia may be uncertain, the exploration of wholesale CBDCs and digital money innovations remains a priority. The RBA is committed to engaging with industry stakeholders and the public to assess the potential of CBDCs and ensure that any future monetary arrangements align with the needs of the Australian economy in the digital age.