RBA Shifts Focus to Wholesale CBDC, Pauses Retail CBDC Plans

The Reserve Bank of Australia (RBA) has announced that it will not be pursuing a retail central bank digital currency (CBDC) in the immediate future, opting instead to concentrate on developing a wholesale CBDC. This decision was detailed by RBA Assistant Governor Brad Jones during his speech at the Intersekt Fintech Conference in Melbourne on September 18.

Jones emphasized the RBA’s strategic commitment to prioritizing wholesale digital money and infrastructure. He stated, “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.”

Limited Benefits of Retail CBDC

The RBA’s research suggests that a retail CBDC would offer minimal innovation for public use in Australia. In contrast, a wholesale CBDC could provide significant advantages for both commercial and central banks. Key benefits identified include:

• Reduced Counterparty and Operational Risks: Enhancing the security of transactions.
• Increased Transparency and Auditability: Making financial operations more accountable.
• Enhanced Liquidity and Transaction Capabilities: Improving efficiency in financial transactions.
• Lower Intermediary and Compliance Costs: Streamlining processes for financial institutions.

Jones expressed that the perceived benefits of a retail CBDC for the Australian public appear to be “modest or uncertain,” warning that it could introduce challenges such as higher borrowing costs, an increased risk of bank runs, and complications in implementing effective monetary policy.

Project Acacia: The Central Bank’s Next Step

The RBA’s immediate focus is the public phase of Project Acacia, which aims to explore the potential of wholesale CBDCs and tokenized commercial bank deposits. This initiative will build upon the central bank’s previous research into CBDCs and examine future cross-border applications in collaboration with regional central banks.

Project Acacia will also establish advisory forums involving industry and academic experts on CBDCs, support reforms in regulatory sandboxes for financial innovation, and engage the public regarding a retail CBDC.

In addition to CBDC research, Jones noted that the RBA is investigating the benefits of asset tokenization and the role of blockchain and smart contract technologies in enhancing central bank operations. He highlighted the potential of programmability through smart contracts to improve collateral management and reduce counterparty risk by enabling atomic exchanges of money and assets on the same ledger.

Global CBDC Landscape

The global interest in CBDCs is noteworthy, with the Atlantic Council reporting that 134 countries—representing 98% of global GDP—are exploring the concept. Among these, 66 countries are in advanced phases of exploration, development, pilot testing, or actual launch of their digital currencies.

As the RBA shifts its focus to wholesale CBDC development, it underscores a growing trend among central banks to prioritize innovations that enhance financial infrastructure and efficiency. With Project Acacia set to pave the way for future advancements, Australia is positioning itself to be an active player in the evolving landscape of digital currencies.