The Reserve Bank of Australia (RBA) has indicated its openness to the concept of Central Bank Digital Currency (CBDC) as the potential future of money. In a recent speech titled “A Tokenised Future for the Australian Financial System,” Brad Jones, the Assistant Governor (Financial System) of RBA, addressed the opportunities and challenges presented by the tokenization of assets and digital money in the modern age. Jones also shed light on RBA’s plan to leverage CBDCs as a form of digital currency.
Jones commenced his speech by providing a historical overview of the various forms of money used throughout human history. He emphasized the continuous evolution of financial instruments over time and how these changes have shaped the current landscape of the financial system.
Discussing the contemporary financial landscape, Jones highlighted the significance of tokenization and tokenized forms of money. Specifically, he pointed out two key players in this arena: stablecoins and CBDCs.
Stablecoins, Jones noted, can be a viable option for settling tokenized transactions when issued by well-regulated financial institutions and backed by high-quality assets such as government securities and central bank reserves. However, he cautioned against the risks associated with stablecoins issued by private entities due to the absence of robust regulatory guidelines.
CBDCs: A promising form of transaction settlement
In contrast, Jones expressed confidence in the potential of CBDCs, which would exist in the form of tokenized bank deposits, to serve as an effective form of transaction settlement. He underlined that the introduction of tokenized bank deposits would represent a minor deviation from the current practice, as various banks already widely exchange and settle deposits across the central bank balance sheet. Transactions involving tokenized deposits would continue to be settled through the transfer of exchange-settled balances between the payer and payee banks.
Brad Jones further shared insights from the Reserve Bank of Australia’s pilot CBDC program, shedding light on areas where CBDCs could add significant value, particularly in wholesale payments. The pilot program demonstrated the potential of CBDCs in facilitating atomic settlement within tokenized asset markets, a development that holds substantial promise for enhancing efficiency and security in financial transactions.
Additionally, the pilot project underscored the opportunities for a wholesale CBDC to complement emerging forms of privately issued digital money, namely tokenized bank deposits and asset-backed stablecoins. This synergy between CBDCs and private digital money could pave the way for a more robust and diversified financial ecosystem.
As the Reserve Bank of Australia continues to explore the potential of CBDCs and tokenization, it is clear that the financial landscape is on the brink of transformation. While stablecoins offer promise but come with regulatory concerns, CBDCs appear to be a reliable and secure form of digital currency, particularly in wholesale payments and tokenized asset markets.
