Offical Digital Currency For Retailers + Smartphones Coming
Reserve Bank governor Philip Lowe has explained how the changing nature of financial transaction could see the central bank support “central bank digital currency” for the retail market, in which ‘tokens’ (much like cryptocurrency) could be held in digital smart wallets and used instead of money.
Unlike cryptocurrency, which is highly speculative, decentralised, and not subject to traditional banking regulations, these “eAUD” tokens would be tied to and issued by the Central Bank.
Basically, it’s a digital version of money, and the RBA is “open to this possibility”.
“We are working through the relevant technical issues, as well as the broader policy implications of any shift away from a payments system based on the movement of value between bank accounts, to one that uses tokens,” Lowe said this morning, in a speech to the Australian Payments Network Summit.
“It is possible, however, that the public policy case could emerge quite quickly as technology evolves and consumer preferences change.
“It is also possible that these tokens could offer a lower-cost solution for some types of payments than provided by the existing technologies.”
By this, Lowe is referring to the electric payment systems offering via digital wallets such as Apple Pay, Samsung Pay and Google Pay. These companies take a cut of any transactions, which hits the bottom line of the banks.
The RBA is “continuing to examine closely the case for a retail CBDC and working with other central banks on this issue”, according to Lowe.
Lowe said that, rather than offering a facsimile of digital wallets such as Apple Pay, a Central Bank wallet could “provide more than just access to existing bank and credit card accounts. In particular, they could contain digital tokens that could be used to make payments.”
“We are working through the relevant technical issues, as well as the broader policy implications of any shift away from a payments system based on the movement of value between bank accounts, to one that uses tokens,” he said.
“This could allow day-to-day payments to be made by moving tokens around rather than moving banknotes or value between bank accounts.”
During a Q&A session, Lowe acknowledged that a retail CBDC paying interest might see it compete with private bank accounts, something that might not be in the public interest.
“That could change the whole structure of the financial system. The liability structure of the banking system would change and the central bank could have a very large balance sheet.
“There are deep issues about how it could affect the stability and operation of our payments system that we need to work through, and in the meetings I often do late at night on international conference calls, we are talking about those.”
This is quite an about-turn from the Reserve Bank’s usually cautious approach to digital currency. Lowe appeared to be open to experimentation, saying that if commercial banks issue a ‘stablecoin’, which rises and falls with the Australian dollar, the RBA is willing to go with it.
“If this is how the system develops, it will be important that these tokens are backed by high-quality assets and that they meet high standards for safety and security.
“So, if privately issued stablecoins are ultimately the way things head, it will be crucial that they meet very high standards. And if there were to be multiple stablecoins, there would be advantages in them being interoperable. The RBA is working with domestic regulators and our counterparts around the world on the policy issues here.
“If stablecoins and other types of privately issued digital payment tokens are to become more widely used for everyday payments, they need to be subject to a clear and effective regulation than encourages innovation and mitigates against risks to users and the financial system.”
Even riskier decentralised cryptocurrencies aren’t off the table in this brave new world.
“They can help support innovation, especially where they are linked to smart contracts and used in decentralised finance applications,” he said.
“There is value in experimentation to find out what works and what doesn’t.”