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The potential benefits of a CBDC in the Australian context include its possibilities to enhance the country’s monetary and payment systems and support competition and efficiency in the payments system while reducing user costs.
Australian central bank digital currency (CBDC) pilot has received over 140 use case proposals for members of the financial industry. This unexpected response prompted the Reserve Bank of Australia (RBA) to issue a warning. Following the release of the project’s whitepaper on Aug. 9, over 80 finance firms have proposed use cases that extend to a variety of sectors including e-commerce, offline transactions, and government payments. In addition to listing some potential benefits, the RBA has warned that a CBDC has the potential to undermine the Australian dollar and traditional banking.
In a Thursday speech titled “The Economics of a Central Bank Digital Currency in Australia”, Assistant Governor Brad Jones spoke extensively about the potential effects of a CBDC on the country’s economy. This was at a central bank conference held from Dec. 8 to Dec. 9 local time.
Potential Benefits and Risks of an Australian CBDC
Jones highlighted potential risks, among them illiquidity that might arise and pose a threat to commercial banks if a CBDC were to become the preferred source of household liquidity holdings. Data shows that at present, 60% of the total funding for banks is generated from customer deposits.
“Central banks could find themselves awash in household deposits they don’t need and can’t usefully invest; control over the size of central bank balance sheets would be ceded in the process. Meanwhile, commercial banks, which do need deposits to finance their operations, could have their funding and lending channels significantly affected, disrupting monetary policy transmission in the process,” Jones warned, adding that “careful consideration would need to be given to the transition risks associated with new bank funding and lending models resulting from the introduction of a CBDC.”
The Assistant Governor also mentioned the potential benefits of a CBDC in the Australian context. These include the potential to enhance the country’s monetary and payment systems and increase competition and efficiency in the payments system while reducing user costs. Another benefit, according to Jones, is privacy. He stressed that the central bank does not intend to use personal data which private entities can exploit. Another potential benefit highlighted was the protection of monetary sovereignty from forces such as stablecoins and foreign CBDCs.