The Reserve Bank of Australia (RBA) and Digital Finance Co-operative Research Centre (DFCRC) have released their final report on the findings from their recently completed central bank digital currency (CBDC) pilot.
The 44-page report summarizes the 15 use cases explored in the pilot program and identified four primary ways in which Australia’s payment system could benefit from a CBDC:
- enabling ‘smarter’ payments by taking advantage of the automation inherent to smart contracts;
- supporting innovation in asset markets e.g. the tokenisation of financial and real-world assets by allowing these tokenised assets to be used for the atomic settlement of transactions;
- promoting private digital money innovation by improving the interoperability and transposability across different kinds of private money e.g. tokenised bank deposits and liabilities; and
- enhancing resilience and inclusion in the digital economy by providing households and businesses with an alternative way to make electronic payments.
The report also includes a number of legal and regulatory findings. The pilot CBDC (the e-AUD) was structured as a contractual liability of the RBA rather than under a legislative framework, meaning there was inherent uncertainty about its legal status and regulatory treatment. A number of participants were uncertain if they were providing custody services or dealing in a regulated financial product by holding or dealing in the pilot CBDC. The report noted that these issues would ordinarily be anticipated and resolved in any legal and regulatory reforms that accompany the issuance of a CBDC.
Industry participants also noted how difficult it was to correlate the existing regulatory regime to their use case (as opposed to the actual pilot CBDC itself). These issues primarily related to the legal and regulatory treatment of digital assets, in particular whether they constituted ‘financial products’ under the Corporations Act 2001. Concerns were also raised by participants regarding taxation and the applicability of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
The pilot nevertheless underscored the potential for new business models enabled by CBDC to emerge in the future while noting the need for potential regulatory adjustments to accommodate those business models. The report also recommends that consideration be given to establishing regulatory sandboxes to enable future industry experimentation and testing of new financial products and services.
The report notes that while the introduction of a CBDC could improve the payments system and overall financial infrastructure of Australia, it concedes that many benefits proposed in the use cases could be achieved in other ways (e.g. by using privately issued tokenised bank deposits or asset-backed stablecoins).
Noting the recent developments and efforts by Australian regulators and legislators (see Treasury’s token mapping consultation paper, the government’s plan to improve the existing payment system, and the ATO’s promise to release additional guidance by December 2023), the report emphasised the importance of the research to inform future analysis and regulatory enhancement.
The findings from this project, alongside other policy work on CBDC, should help to inform future analysis of the legal implications of using a CBDC, and regulatory enhancements that may be considered to enable responsible entities with new business models to operate with appropriate regulatory oversight.
In summary, the report highlights the industry-changing potential of distributed ledger technology and will likely be seen as boost to further research and development work to assess the benefits of an Australian CBDC.
