The Reserve Bank of Australia (RBA) has announced that it is planning a Proof-of-Concept for a central bank digital currency (CBDC). According to the RBA,
The project will involve the development of a proof-of-concept (POC) for the issuance of a tokenised form of CBDC that can be used by wholesale market participants for the funding, settlement and repayment of a tokenised syndicated loan on an Ethereum-based DLT platform.
It is good to see the RBA exploring CBDC’s and the potential they have to optimize their current processes, but by using the Ethereum blockchain the RBA is bound to run into obstacles. Transactions fees on Ethereum are often pricier than the transaction fees banks face when using fiat currencies; and Ethereum’s technical parameters make it unable to handle high throughput without the network becoming bottlenecked.
‘With this project we are aiming to explore the implications of a CBDC for efficiency, risk management and innovation in wholesale financial market transactions. While the case for the use of a CBDC in these markets remains an open question, we are pleased to be collaborating with industry partners to explore if there is a future role for a wholesale CBDC in the Australian payments system,” said RBA’s Assistant Governor (Financial System) Michele Bullock.
The RBA expects its CBDC project to conclude by the end of the year (2020) and intends to publish a report that covers the project’s findings during the first half of 2021.
The future of money
Digitized money and distributed ledger technology is the future of the banking and finance industry. Financial institutions around the globe are beginning to realize the benefits such as improved settlement times and reduced costs that come with using a blockchain in their business operations. Several governments are currently researching and developing a CBDC, with China’s DC/EP being the CBDC that appears to be closest to a public launch.
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