The Reserve Bank of Australia (RBA) published a report into its two-year research project into wholesale central bank digital currencies (CBDCs) that emphasized the benefits of digitizing and autonomizing manual, paper-based banking processes using distributed ledger technology (DLT).
The report marks the conclusion of the two-year project named “Project Atom” that was conducted in partnership with the Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Perpetual, and ConsenSys, along with additional input from King & Wood Mallesons.
Commenting on Project Atom, RBA’s assistant governor (Financial System) Michele Bullock noted that it “demonstrated the potential for a wholesale CBDC and asset tokenization to improve efficiency, risk management and innovation in wholesale financial market transactions.”
A wholesale CBDC refers to a central bank issued digital currency that is designed for the settlement of interbank transfers and transactions between financial institutions, as opposed to a retail CBDC that is intended for public use.
The CBDC research was published on Dec. 8, the same day Treasurer and Deputy Liberal leader Josh Frydenberg unveiled an ambitious “payments and crypto reform plan” for fintech and crypto regulation in Australia. The government has indicated it is in favor of at least six crypto reform proposals recommended by a Senate Committee, and is investigating others.
The project consisted of a proof-of-concept (POC) for the issuance of a “tokenized form of CBDC” that could be utilized in a digitized wholesale syndicated loan market. The testing took place on an Ethereum-based distributed ledger technology (DLT) platform.
The report found that a wholesale CBDC backed by DLT technology could significantly increase efficiency and reduce operational risk by “replacing highly manual and paper-based processes related to the origination and servicing” of data, transactions, loan payments and settlements to name a few.
Some issues that the RBA highlighted however, concerned “transaction privacy, finality, throughput and efficiency” of CBDC and DLT usage particularly related to blockchains that are not designed for wholesale purposes.
The POC experimented with a two-tier model for the issuance and distribution of a CBDC, wherein the RBA issued the digital currency to the commercial banks and then the banks opened up availability to “eligible wholesale market participants that they sponsor onto the platform.”
Related: Reserve Bank warns Aussies over punting on ‘fad driven’ cryptocurrencies
The RBA said that it has explored the concept of CBDCs since 2018 —despite playing down its importance on multiple occasions — but has gradually ramped up its focus on a digital currency since 2020 amid growing interest from governments across the globe, citing China in particular who has already rolled out numerous public trials of the digital yuan.
Bullock outlined that the RBA “will continue its research on CBDCs as part of its strategic focus area on supporting the evolution of payments.”
Speaking with the Australian Financial Review on Dec. 8, Sophie Gilder, the CBA’s head of blockchain and digital assets emphasized the “high-level benefits” of using a CBDC, noting that an interoperable register and payments system could provide greater transparency for payments, data and auditing:
“I think of it as ‘operational alpha’: greater efficiency and greater transparency, which means you don’t have to separately audit and report on activities, and you can have better AML [anti money laundering] procedures because you have a real-time check.”
“That would be beneficial for the economy and make it easier for regulators to do their job, while the programmability would be a giant leap forward and highly beneficial,” she added.
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