Australia’s Central Bank Prioritizes Wholesale Central Bank Digital Currency

The Reserve Bank of Australia (RBA) has announced its decision to prioritize the development of a wholesale central bank digital currency (CBDC) over a retail version. Brad Jones, Assistant Governor of the RBA, outlined the central bank’s strategy during a conference speech, highlighting the potential economic advantages of a wholesale CBDC for financial markets.

Jones unveiled “Project Acacia,” a three-year collaborative effort between the RBA and the Treasury to explore the potential of digital currencies. This project will initially focus on developing a wholesale CBDC designed for use by financial institutions in settling transactions within financial markets.

The RBA believes that a wholesale CBDC offers significant benefits, including reducing counterparty and operational risks, freeing up collateral, enhancing transparency and auditability, and lowering costs for both institutions and customers. These advantages are seen as outweighing the potential benefits of a retail CBDC, which would be accessible to the general public.

“Our assessment suggests that the potential benefits of a retail CBDC are currently modest or uncertain, relative to the challenges it would introduce,” Jones explained.

While the RBA is not dismissing the possibility of a retail CBDC in the future, it plans to reassess its merits in 2027. If a retail CBDC were to be adopted, the decision would ultimately rest with the Australian government, and it would likely require legislative changes.

The RBA’s decision to prioritize a wholesale CBDC aligns with a global trend among central banks exploring the potential of digital currencies. According to the Atlantic Council, a U.S.-based think tank, over 98% of the global economy, represented by 134 countries, is currently engaged in CBDC research and development.

Key Takeaways:

• The RBA will prioritize the development of a wholesale CBDC, citing greater potential economic benefits compared to a retail version.
• Project Acacia, a three-year initiative, will focus on exploring the benefits of tokenized money and new settlement infrastructure for wholesale markets.
• The RBA will re-evaluate the merits of a retail CBDC in 2027.
• This move aligns with a global trend among central banks exploring the potential of digital currencies.

The RBA’s strategic decision to focus on a wholesale CBDC reflects the growing recognition of the potential for digital currencies to transform financial markets. As the project progresses, the RBA will engage with industry stakeholders to assess the feasibility and implications of implementing a wholesale CBDC in Australia.