SYDNEY (Reuters) – A pilot programme for a digital eAUD currency in Australia has attracted much more interest from industry than expected and some projects are set to be tested early next year, a central banker said on Thursday.
However, Reserve Bank of Australia (RBA) Assistant Governor Brad Jones also reiterated the bank was sceptical on the usefulness of a retail central bank digital currency (CBDC) in a market that already had a highly developed payments system.
Over 140 use cases for eAUD
Jones said the RBA’s pilot ‘eAUD’ programme with the Digital Finance Cooperative Research Centre (DFCRC) had attracted more than 140 use case proposals from around 80 entities, well above initial expectations.
“The use cases span everything from e-commerce payments, to offline payments, government payments, and the trading and settlement of tokenised assets,” said Jones, who heads the RBA’s financial system unit.
Interested entities ranged from large banks, financial market infrastructure providers and consultancies, to small digital asset firms and fintechs.
The RBA intends to select a number of proposals to take forward into the pilot phase early next year.
Costs and dangers of retail CBDC
However, Jones cautioned that the actual adoption of a retail CBDC to replace cash would be revolutionary and come with costs and dangers that had yet to be addressed.
For a country with an already advanced payments system and easy access to cash such as Australia, it was not clear what problem a CBDC would be solving, Jones said.
Instead, it was possible household holdings of eAUD at the RBA would end up replacing deposits held by commercial banks, sapping their ability to lend.
“Central banks could find themselves awash in household deposits they don’t need and can’t usefully invest,” he said. “Meanwhile, commercial banks, which do need deposits to finance their operations, could have their funding and lending channels significantly affected.”
It could also lead to faster runs on the banking system, since if households were to lose confidence in a bank they could switch to CBDC en masse with the stroke of a keyboard.
“Prior to crossing this Rubicon, a strong public interest case would first need to emerge,” Jones concluded on adoption of a retail CBDC. “On balance, we have yet to see that case made in Australia.”
(Reporting by Wayne Cole; Editing by Stephen Coates)