Bitcoin in new zealand map

Reserve Bank of Australia seeks input on use cases for CBDC pilot program

The Reserve Bank of Australia (RBA) is seeking input on use cases and features for a central bank digital currency (CBDC). This week, it released a white paper detailing a multi-year pilot program that strives to “understand the role of value transfer in emerging digital economies” and will involve a test of a CBDC in the real world.

The RBA is conducting the pilot in cooperation with the Digital Finance Cooperative Research Centre (DFCRC). The DFCRC is a government initiative, a decade-long research program involving the government, the financial industry, regulatory bodies, and academia.

The DFCRC’s goal is to find opportunities in “the universal digitization of all assets, so they can be traded and exchanged directly and in real-time between any individual or organization.” Participants may also argue for their use-case to be included in any real-world pilot test.

Another key objective is to find out whether CBDCs offer enough benefit (at least to Australia’s economy) to be necessary at all, given the time and costs involved in implementing a radical new financial system. The new white paper will also explore potential roles for “appropriately regulated privately issued stablecoins” to support transactions in a tokenized economy.

BSV blockchain development firm nChain has also been active in devising CBDC scenarios and designing potential infrastructure. In August 2022, it published a CBDC Playbook outlining its arguments:

Other central banks are also exploring the idea, with the Bank of England publishing its paper in March 2020 and the People’s Bank of China already testing its “digital yuan” in real-world pilot tests.

What is a CBDC and why are people talking about them?

What’s the difference between a CBDC and a digital version of today’s national fiat currencies? To the average user and consumer, there isn’t much. The difference is mainly on the management side—central banks would no longer rely on commercial banks and clearing houses for transactions, reducing complexity and costs in the system overall. It’s similar to wholesalers selling products directly to the public rather than distributing them to retail outlets.

There would also be a more central record of all transactions and more efficient tracking of the overall money supply. Central banks could directly control the amount of money in the system rather than relying on indirect monetary levers like quantitative easing and interest rates. Some see benefits for financial inclusion since the central bank could provide anyone with a free digital account and possibly even load it with “helicopter money” if such a practice becomes politically acceptable.

While CBDCs are often said to be inspired by Bitcoin and other blockchains, there are examples of test programs in Europe from the 1990s and early 2000s. In fact, many see CBDCs as not requiring blockchain technology at all, since a central bank could rely on a closed system with complete control over its functions.

One big problem facing the CBDC concept is trust, particularly in public suspicion over handing more control to central bank policymakers and efficiently tracking all transactions. People fear that moves to counter serious crime and tax evasion could easily broaden into total control over spending and private bank accounts, leading eventually to loss of freedoms through direct financial limitations on any individual or company the government deems uncooperative.

If CBDCs are inevitable, then trust is the reason it’s more desirable to have them running on a public and open blockchain rather than a private network. In its ebook, nChain says a more traditional private database “can be easily manipulated” by malicious actors, and says “immutability is critical for a CBDC.” A central bank could maintain full control over the supply and policies of its CBDC, while records of changes would be permanent and timestamped.

Another advantage to using the BSV blockchain is that the infrastructure already exists, and its fundamental protocol rules cannot be changed. The public still needs to trust policymakers, but that situation already exists in today’s monetary systems.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: The BSV Global Blockchain Convention presentation, CBDCs and BSV

YouTube video

New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.