Australia is not likely to see a central bank digital currency (CBDC) any time soon as the country’s reserve bank is of the view that the existing system ‘works well’.
Speaking at this year’s Swift International Banking Operations Seminar (SIBOS) currently underway in Sydney, the assistant governor of the Reserve Bank of Australia (RBA), Michelle Bullock, said that the apex bank has yet to find a convincing reason to create a digital version of the Australian dollar.
According to the Financial Review, Bullock also added that the RBA is not interested in having a digitized version of the Australian dollar for domestic use since the system already works well and users don’t really need access to direct settlement in order for them to carry out transactions.
Burden of Proof
However, Bullock, pointed out that central bank digital currencies could play some limited specific roles though the fintech sector would bear the burden of proving the advantages of the new tech over existing systems.
"We do have more of an open mind on the issue of wholesale and whether or not central bank digital currencies should play a role in assisting with perhaps supply chains, cross border …" said Bullock. "But it remains for industry to demonstrate to us really why what we have got available in terms of payments systems, including those still coming on board, can't actually deliver that already."
Though untested, one of the touted benefits of CBDCs for central banks is that the technology would allow reserve banks to run negative interest rates and thereby overcome the monetary policy problem known as the zero lower bound. This is a problem experienced when interest rates are at or near zero thereby diminishing the capacity of the central banks to stimulate economic growth as a result of the resulting liquidity trap.
Flight to Safety
However, even though CBDCs could solve this problem, at least in theory, they may also complicate the management of monetary policy and liquidity for central banks in times of crises such as a bank run, per Bullock. This is because depositors would flock to a CBDC as they flee commercial banks seeking a ‘safe haven’.
"That would take liquidity out of the system and centre it in the central bank,” said Bullock. That might make the management of liquidity and monetary policy more difficult in those circumstances."
RBA’s stance on CBDCs stands in contrast to several central banks spread across the globe which are exploring the idea of digitized versions of their national currencies. As previously reported by CCN, this includes Thailand under an initiative known as ‘Project Inthanon’. Others are Norway and Sweden, two Scandinavian countries which are currently grappling with a problem of low cash usage levels. The Bahamas and Canada are also exploring CBDCs.
Featured image from Youtube/Seamless Australasia.