Australia’s Reserve Bank is collaborating with the Digital Finance Cooperative Research Centre (DFCRC) on a research project to explore use cases for a central bank digital currency (CBDC). As the bank says, considerable research has been undertaken by central banks, including the Reserve Bank, into the feasibility and possible technical design of CBDC, exploring the potential use of new technologies such as distributed ledger technology.

A question that has received less attention to date, especially in countries like Australia that already have relatively modern and well-functioning payment and settlement systems, is the use cases for a CBDC and the potential economic benefits of introducing one. The project with the DFCRC wants to address this gap by focusing on innovative use cases and business models that could be supported by the issuance of a CBDC in the country. The project will also be an opportunity to further understanding of some of the technological, legal, and regulatory considerations associated with a CBDC, the bank said.

The project, which is expected to take about a year to complete, will involve the development of a limited-scale CBDC pilot that will operate in a ring-fenced environment for a limited period and is intended to involve a pilot CBDC that is a real claim on the Reserve Bank. Future steps Interested industry participants will be invited to develop specific use cases that demonstrate how a CBDC could be used to provide innovative and value-added payment and settlement services to households and businesses. The Reserve Bank and the DFCRC will select a range of different use cases to participate in the pilot, based on their potential to provide insights into the possible benefits of a CBDC.

A report on the findings from the project, including an assessment of the various use cases developed, will be published at the conclusion. The findings will contribute to ongoing research into the desirability and feasibility of a CBDC in Australia. The Australian Treasury is participating as a member of the steering committee for the project, as part of its joint work with the Reserve Bank on exploring the viability of a CBDC in Australia.

The bank announced that a paper will be published in the next few months that will explain the objectives and approach of the project in more detail and how industry participants will be able to engage. Working with a wide range of industry participants will help the bank better understand the potential benefits CBDC could bring to Australians. As representatives from DFCRC stated, technical limitations for CBDC implementation are no longer a problem, and right now the main question is whether the digital currency can bring benefits from an economic perspective.

Maximising those benefits is a goal for the bank and for the research program. The DFCRC is a 10-year, AUD 180 million research program funded by industry partners, universities, and the Australian Government, through the Cooperative Research Centres Program. The DFCRC's mission is to bring together stakeholders in the finance industry, academia, and regulatory sectors to develop and harness the opportunities that financial markets can bring, implying the digitisation of assets that can be traded and exchanged directly and in real-time on digital platforms.

The Reserve Bank is an industry partner of the DFCRC, and is using its involvement in the DFCRC to support work on its strategic focus area on supporting the evolution of payments, including through research on CBDC. .