Australia’s Central Bank Says Digital Currency Will Save Billions

A man walks past the Reserve Bank of Australia sign in Sydney, Australia, on Sep. 6, 2016. William West/AFP via Getty Images

The Reserve Bank of Australia (RBA) has outlined plans to introduce tokenised money to Australia, including central bank digital currencies (CBDCs).

In a speech issued on Monday, the bank’s assistant governor, Brad Jones, cited a key monetary incentive for the transition, claiming a tokenised means of payment will save billions of dollars.

As opposed to the incumbent form of currency, tokenised currencies are built using blockchain technology and are uniquely characterised by decentralised ledgers.

Currently, the ledgers on which our money is kept are held by the commercial banks we use. Tokenised currencies exist on ledgers that are a part of decentralised networks, meaning that no single entity can assert control.

Mr. Jones, who leads the RBA’s financial system division and has previously served at the International Monetary Fund (IMF), touched on the efficiencies yielded from the world’s transition from physical currencies made of metal to paper and digital money as a lesson worth drawing from history.

“The dematerialisation of finance saw paper-based forms of assets, money, and record ledgers give way to electronic variants. This fuelled efficiencies that must have seemed unimaginable half a century ago,” Jones said.

Money will ostensibly be saved by such a new currency in the name of $13 billion (US$8.2 billion) through eliminating delays between trade execution and settlement, which is still often done manually and only during business hours.

A tokenised currency would also boost market efficiency by making money more readily available and repricings more timely.

For instance, pricing in the market for bank term deposits—comprising around 15 percent of bank funding across the nation—is still manually conducted. A digital tokenised currency could make this pricing more instantaneous and information across markets more transparent.

“Tokens confer more than just ownership rights. They also contain rich, unique information that can be updated instantaneously, and can be programmed via smart contracts to perform functions that are not currently performed in traditional finance applications,” Mr. Jones said.

He suggested the potential usage of four models currently under consideration by the RBA; unbacked cryptocurrencies, asset-backed stablecoins, tokenised bank deposits, and CBDCs, whilst also mentioning the potential risks and challenges associated with each.

The main challenge the new currency proposal poses is the regulatory uncertainty that surrounds it.

Given the primitive nature of blockchain technology, it is often susceptible to security risks and legal ambiguity. It exists on decentralised networks outside the realm of governmental control and is thus extremely difficult to monitor and impose regulations upon.

The other large challenge that looms is market volatility. The world’s most popularised tokenised currencies like Bitcoin and Ethereum are often subject to extreme price fluctuations because their demand is typically driven primarily by speculation.

The intrinsic value of decentralised currencies is still highly contentious and thus market participants generally don’t purchase them as long-term investments. They instead generally buy and sell them to profit off of short-lived price movements from which a self-fulfilling prophecy is created.

A visual representation of the Bitcoin cryptocurrency is pictured in London on May 30, 2021. Edward Smith/Getty Images

An Increasingly Cashless Society

Sentiments from the RBA regarding token currencies come amid the rapid digitisation of Australia’s currency and abandonment of cash and brick-and-mortar banking.

In early September, Macquarie Bank—Australia’s fifth largest commercial bank behind the big four—announced its intentions to transition to a primarily digital banking service and platform by phasing out cash and cheque deposits and withdrawals.

In a statement made on the bank’s website, it says that by November this year it will no longer be offering customers any cash or cheque services. It will instead be solely facilitating payments digitally.

The National Australia Bank (NAB) has also made moves in the way of currency regulation, but in cracking down on crypto and other decentralised currencies.

In July, the bank declared it would cease payments to and from certain cryptocurrency exchanges to protect its customers from fraud and predatory scammers.

Further, the increasing number of bank branch closures are placing a number of traditionally conducted banking practices online.

According to the Australian Prudential Regulation Authority (APRA), over 300 branches nationwide were shut throughout the 2022-23 financial year, with 95 of those in regional areas where closures are likely to affect the community the most.

Over the past five years, there has been a 30 percent decrease in the number of bank branches across Australia. The closures have been expedited in rural areas because of their lack of profitability.

However, the move to a “cashless society” may not be entirely driven by the private sector. In June, Treasurer Jim Chalmers outlined a plan to shake-up Australia’s payments system, insisting that ditching cash and cheques is imperative to the nation’s transition toward a modern economy.

Mr. Chalmers also suggested a larger role for the RBA in regulating swiftly evolving payment systems.

Australian Banking Association (ABA) CEO Anna Bligh later confirmed that it is the government that provides direction to the corporate policy reforms within the commercial banking sector and payments industry.