Sending Australia to the front of the line for central bank digital currency (CBDC) adoption, the Reserve Bank of Australia (RBA) has released a detailed outline of a pilot project for the eAUD, set to finish up midway through next year.
According to the white paper published this week, there isn’t a firm commitment to issue a CBDC, however the RBA has invited members of the the financial industry to provide “ongoing research”.
The key objectives from this industry participation are to “identify and understand innovative business models, use cases, benefits, risks and operational models for CBDC in Australia.” The trial period is expected to end in the beginning of next year with results to be published in mid-2023, according to the document.
The report’s timeline states that a report on the findings of the pilot program will be published midway through 2023.
Interestingly, the eAUD will be constructed on an Ethereum-based (ERC-20) model, which Finder co-founder Fred Schebesta says is a positive sign for the Ethereum network.
“The RBA has indicated their confidence in the Ethereum platform by looking to run their token on a private version (ERC-20),” he said.
Additionally, the paper outlines that the RBA will be responsible for “minting, issuing, redeeming and burning eAUD” however, the RBA spelled out that participants in the pilot program will: “bear their own costs for the conception, design, development, implementation and piloting of use cases.”
Schebesta also drew contention with the limited scope of the pilot program, claiming that cross-border payments would be a better use case.
“Only having Australian entities and residents in the pilot will limit its use cases and value to consumers. International settlement is probably one of the best use cases,” he said.
A CBDC is a “fascinating development” for Australia
“It’s a very limited pilot, as such, the program by the RBA is a really fantastic step forward.”
Outlining the potential use cases, Hennessey acknowledges that because of Australia’s geography and “various other socioeconomic factors”, many Aussies are left financially under-serviced or entirely unbanked. To that point, Hennessy says that a CBDC will help kickstart financial inclusion for those Australians living in remote, or largely cut-off communities.
“I think that the use case for financial inclusion in Australia is a really wonderful one, particularly for people in remote communities, and those living in Indigenous communities as well. [A CBDC] can give people who don’t have banking access or who have limited assets, access to banking services as a means of financial inclusion,” he said.
For Hennessey, the next most significant feature of a CBDC will be its ability to streamline payments.
“CBDCs are much cheaper to operate than our existing payments infrastructure. There’s a nonprofit nature of the RBA, so you’re not going to be paying for all the payments infrastructure that currently exists. So giving access to CBDCs, for people who want to access and use the payments infrastructure, is a really good one,” he said.
The implementation of CBDC is not without its challenges, adds Hennessey, saying that once the RBA takes the “big four, high street banks” out of the equation and allows the Reserve Bank to “directly interact with people”, a multitude of both market opportunities and threats opens up.
But what about privacy?
One of the most common criticisms of CBDCs emerges from the issue of privacy, as the concept of a government-controlled currency often strikes a chord with the anonymity & privacy focused tenets of blockchain advocates.
Speaking to this, Hennessey argued that CBDCs are designed for distinct purposes and in this sense, blockchain technology is being used in a fundamentally different way.
“I think if you’re dealing with CBDCs, you know, it’s not decentralised, like it would be in ‘pure crypto’. It’s obviously a centralised currency so you’re just not going to have the same privacy,” he said.
“I don’t really have any privacy concerns in terms of the CBDC. The RBA will be protecting those transactions from a privacy point,” he added.
Other countries around the world have also started experimenting with CBDCs. Most recently, Norway released the open-source version of its code for the country’s CBDC which it revealed will be built on the Ethereum network.
The Reserve Bank of India began talks with domestic fintech companies and state-run banks concerning its own CBDC trial program. Meanwhile, Nigeria kicked off a conversation with Binance about implementing a ‘crypto-friendly zone’. A few weeks earlier, the country’s CBDC, eNaira entered phase two of its deployment program.