China bares CBDC upgrade; Australia’s Project Acacia underway

Getting your Trinity Audio player ready...

Adoption levels for the central bank digital currency (CBDC) have been sluggish in recent months, but China and Australia are renewing efforts to advance initiatives expected to stimulate the development of new use cases and foster further innovation.

Recently, the People’s Bank of China (PBoC) unveiled a new upgrade to the digital yuan hardware wallet designed to improve its usability for tourists and less tech-savvy residents. The latest development improves the capabilities of its previous iteration and features QR codes and Near Field Communications (NFC) technology.

Originally announced in 2021, the hardware wallet bears a striking similarity with debit cards, with the PBoC retrofitting the offering with buttons and an e-ink visual display. Users of the hardware wallet leveraged the buttons to input payment prices while the screen indicated pertinent information.

After nearly three years since their launch and patchy adoption levels, the PBoC’s Digital Currency Research Institute rolled out an encompassing upgrade. Described as scannable, the Institute attempted to outdo the 2021 version by a country mile, inserting a range of functionalities.

Users of the new cards can use the NFC capabilities to make no-contact payments at POS devices. Furthermore, the new cards are described as significantly more visual than its predecessor, given a larger screen area that is indicative of users’ balance and the amount to be paid.

The screen features English and Mandarin, focusing on tourists, but it remains to be seen if the PBoC will expand to more languages in the coming months. Enterprises without a PoS that supports NFC technology can use the hardware wallet’s QR functionality to receive payments, a strong show of inclusivity by the central bank.

With street vendors, large-scale merchants and tourists covered, the PBoC reiterated that the main targets of the upgrade are residents without access to Internet connectivity and traditional financial services.

Apart from its offline functionalities, the digital yuan hardware wallet features enhanced security, with the central bank experimenting with programmability features for transaction limits.

Racing toward mainstream adoption

Since the start of the year, Chinese authorities have taken positive steps to trigger a wave of adoption for the CBDC, partnering with the private sector to achieve its goals. Several banks have also picked up the gauntlet to expand the scope of their digital yuan services for corporate clients, including HSBC (NASDAQ: HSBC) and Citi (NASDAQ: C).

Earlier, the PBoC removed the word ‘pilot’ from the digital yuan app description on app stores, fueling speculation that it is inching toward a mainstream rollout. At the moment, one in eight persons in Mainland China has a digital yuan wallet, and the PBoC is keen on increasing the figure before 2025.

Australia pushes ahead with wholesale tokenization project

Elsewhere, the Reserve Bank of Australia (RBA) will proceed with its studies on asset tokenization in the financial system after testing the waters with early CBDC pilots.

The RBA has announced a public consultation, seeking input from ecosystem players to participate in the studies. The latest study is a partnership between the RBA and the Digital Finance Cooperative Research Centre with minimal participation from the securities regulator and the Treasury.

Dubbed Project Acacia, the study’s primary purpose is to explore the role of privately issued digital currencies and CBDCs in improving the tokenized asset market. While the popular convention is that available offerings may be sufficient, Project Acacia is keen on experimenting with a new form of tokenized central bank money.

The central bank money will be similar to a wholesale CBDC but will focus on issuance on third-party blockchain networks. Previous CBDC experiments recorded issuance on RBA-controlled infrastructure, but the latest wave of experiments will turn to third parties akin to Switzerland’s Project Helvetia.

Turning to third parties will offer a raft of benefits, including cross-network settlements, while serving as a bridge for different assets. Enthusiasts argue that the new iteration of wholesale CBDCs will improve liquidity for digital markets with third-party distributed ledgers providing advanced smart contract functionalities.

RBA executives are hinting at expanding the study to focus on the Asia-Pacific region to improve the state of cross-border settlements.

“The aim is to examine how innovation in wholesale markets could be enabled by new forms of digital money and supporting infrastructure,” said RBA Deputy Governor Brad Jones. “The role that tokenized asset markets could play in improving the efficiency and resilience of wholesale payments and settlements, and in enhancing cross-border payments, are areas of particular interest.”

Apart from the new iteration of the wholesale CBDC, Project Acacia will experiment with deposit tokens, stablecoins, reserve-backed digital currency (RBDC) and funds in Exchange Settlement Accounts.

Wary of the downsides

According to a cross-section of experts, central banks should be wary of issuing wholesale CBDCs on third-party architecture since this may reduce the powers of banking regulators in controlling monetary policy.

However, turning to existing CBDCs will see the central bank give up a chunk of atomic settlement capabilities for tighter controls. Proceeding with Project Acacia may lead to wholesale changes in the existing financial framework since its operation involves several financial agencies.

While proceeding in a sandbox will cushion the effects, experts predict an avalanche of regulatory changes to the financial landscape, with the Australian Securities and Investments Commission (ASIC) poised to take the biggest hit.

Watch: The state of play and what’s to come with CBDCs