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The Reserve Bank of Australia (RBA) is examining the potential use and implications of a wholesale form of central bank digital currency (CBDC) using distributed ledger technology (DLT) – blockchain.
In undertaking the work, the RBA is partnering with the Commonwealth Bank of Australia, the National Australia Bank, investment advisory firm Perpetual, and blockchain firm ConsenSys Software.
The five participating organizations will work collaboratively on the project which will involve the development of a proof-of-concept for issuing a tokenized form of CBDC.
The tokenized form of CBDC is expected to be used by wholesale market participants for financing, settlement and repayment of a tokenized syndicated loan on an Ethereum-based DLT platform.
See Also: 10 Things You Thought You Know About Blockchain That Are Probably Wrong (TechRepublic)
The proof-of-concept, the RBA said, will be used to explore the implications of delivery-versus-payment “atomic” settlement on a DLT platform, as well as other potential programmability and automation features of tokenized CBDC and financial assets.
The project, which is expected to be completed around the end of 2020, is part of the Reserve Bank’s ongoing research on wholesale CBDC. The parties intend to publish a report on the project and its main results during the first half of 2021.
“With this project, we aim to explore the implications of a CBDC for efficiency, risk management and innovation in wholesale financial market transactions,” said Michele Bullock, assistant governor of the RBA’s financial system.
“While the case of using a CBDC in these markets remains an open question, we are delighted to work with industry partners to explore whether there is a future role for a wholesale CBDC in the Australian payments system.”
In a presentation to the Select Committee on Financial Technology and Regulatory Technology and its investigation of the opportunities the two carriers present in Australia, the RBA said that “it was not necessary” for central banks to issue a new type of electronic money. in the form of a CBDC, possibly on a blockchain platform.
“The bank’s assessment – like those of most other central banks – is that the case for issuing a CBDC for use by households has not been established,” he said in January.
“One possibility is that there would be little demand from households for such an asset, as they already have good access to digital money in the form of commercial bank deposits that provide payment services, are interest-bearing and are protected (up to AU $ 250,000 per account) from the Financial Claims Scheme. “
He said, however, that increased demand for a CBDC could emerge, particularly in “times of uncertainty”.
The RBA, through its in-house Innovation Lab, examined whether there is a role for a digital Australian dollar in the context of the bank’s responsibilities for issuing the currency and overseeing the payment system.
In the lab, the RBA developed a proof-of-concept of a wholesale settlement system running on a private, licensed Ethereum network.
According to the bank, the proof-of-concept simulated the issuance of central bank-guaranteed tokens to commercial banks in exchange for settlement account balances in exchange, the exchange of these tokens between commercial banks, and their eventual repayment with the bank. central bank.
Buy Now Pay Later: “Merchants Can’t Say No”
Faced with Senate estimates last week, Bullock hinted at the currently stalled work the RBA has undertaken in Australia’s buy-now pay-later (BNPL) industry, saying the bank hopes to strike a balance between allowing l innovation in the payments space and meeting market expectations.
BNPL is the name of a kind of credit payment that allows the purchase of goods without having to pay immediately. Instead, users can pay for the purchased goods later or in installments.
BNPL is offered by fintechs like Afterpay, zipPay, and Klarna, but it’s also a service that customers like Amazon can use on its online marketplace.
See also: Austrac gives Afterpay everything clear following anti-money laundering investigations
“With buy-now pay-later, our concern is not about the consumer aspect. This is not our interest. Our interest is really in the payment system,” Bullock said, citing consumer protections in place through The likes of Competition Commission and Consumers.
“The problem we are looking at is based on rules without premium, which is a problem that has to do with competition and a level playing field. So this is the problem that we focus on.”
Bullock said the Australian Securities and Investments Commissions (ASIC) hasn’t made any decisions yet, rather it is “just making a commitment.”
“We have had discussions and received contributions from the Buy Now Pay Later schemes themselves, as well as others. We don’t have a conclusion on that yet, so I can’t give you a conclusion. All I can say that we are looking into the matter,” he continued.
He said the ASIC is noticing similarities with BNPL and credit cards, particularly when it comes to the surcharge idea.
“The problem here, the market failure here, is that traders find it very difficult to say no to anything. They find it very difficult to say no to accepting anything. And what they tend to do – and we have observed that with credit cards, and we’re looking at it now with buy now pay later: they only want to accept everything on the off chance that the person who walks in wants to use it, “he said.
“They just build all those prices into their price level. This is market failure: traders don’t have a bit more leverage to say,” Can you lower the prices, please? “They don’t have the leverage to do it.”
He said the observations indicate that not allowing rules without surcharges, or only allowing a cost-based recovery, “actually puts some leverage back in the hands of traders.”
“We’ve seen that with credit card systems. My question would be, is market failure evident even in the buy now pay later space? And that’s the question we’re looking at,” he said.
