The Reserve Bank of Australia (RBA) has started a three-year program to develop a wholesale central bank digital currency (CBDC). This comes after the RBA looked into the limited benefits and possible challenges of a retail CBDC, which would be used by the general public. The program will explore new uses, operating models, and the impact a wholesale CBDC could have on Australia’s financial system.
Wholesale CBDCs are digital versions of money that are created and controlled by a central bank, but they are meant for use by big financial institutions, like banks, rather than regular people.
These digital currencies help banks and other financial institutions make large payments or transactions with each other faster, safer, and more efficiently.
Unlike retail CBDCs, which are designed for everyday use by the public, wholesale CBDCs focus on improving how the financial system works behind the scenes.
The RBA said it’s working with industry partners to see how new technologies and ideas like programmable payments can make financial markets more efficient and stable. The research will also look at tokenized bank deposits.
Brad Jones, the Assistant Governor of the RBA, explained that the government is committing to a three-year research program to explore the future of digital money in Australia. The main priority right now is to start a new project with the financial industry focused on wholesale CBDCs and digital versions of bank deposits.
The goal is to understand how new technologies, like programmable payments and instant transactions, could improve Australia’s financial system and benefit the economy.
Additionally, he added that while retail CBDCs have the potential to transform economies around the world, Australia is focusing on wholesale CBDCs for now.
“The context in which we might consider the case for a wholesale CBDC is fundamentally different to retail CBDC because central banks already have a long history of issuing digital money to financial institutions in support of their monetary and financial stability objectives,” he noted.
CBDCs adoption globally
Several nations have started exploring or developing central bank digital currencies (CBDCs) to modernize their financial systems. Each country approaches CBDCs differently, depending on their goals and needs:
China is one of the leaders in CBDC development with its digital yuan (e-CNY), already being tested in several cities. The country aims to make payments more efficient and reduce reliance on physical cash.
In Europe, the European Central Bank is researching a digital euro. They are considering how it could be used by people across the European Union to make everyday payments.
In October 2023, the RBA Assistant Governor, Brad Jones announced that pilot projects have identified several potential use cases for central bank digital currencies (CBDCs).
According to Brad Jones, one notable benefit of CBDCs in wholesale payments is their ability to facilitate atomic settlement in tokenized asset markets. This is one of several areas where CBDCs could add value, as demonstrated by the central bank’s pilot program findings.
