Reserve Bank

Australian central bank to launch ‘live pilot’ of CBDC in coming months

The use cases for the CBDC ranged from offline payments to “trusted Web3 commerce” and financial industry participants were invited to undertake a live pilot.

Australia’s central bank is set to launch a “live pilot” of a central bank digital currency “in the coming months,” according to a joint statement from the Reserve Bank of Australia and the Digital Finance Cooperative Research Centre, an Australian financial research institute.

The RBA said on March 2 that it was collaborating with the DFCRC on a research project to “explore potential use cases and economic benefits of a central bank digital currency (CBDC) in Australia.”

The RBA said the initial stage of the research project involves the selection of several financial industry participants to demonstrate potential use cases of the CBDC.

The pilot project will commence on Mar. 31 and finish on May. 31, with a final report on the findings, including an assessment of the various use cases developed, set to be published on Jun. 30.

Use cases being piloted include offline payments, tax automation and a CBDC for “trusted Web3 commerce,” with participants of the trial ranging from banks — such as Commonwealth Bank and Australia and New Zealand (ANZ) bank — to payment providers such as Mastercard.

*Selected CBDC use cases and the providers of each. Source: RBA*

Brad Jones, assistant governor for financial systems at the RBA, said, “The pilot and broader research study that will be conducted in parallel will serve two ends – it will contribute to hands-on learning by industry, and it will add to policymakers’ understanding of how a CBDC could potentially benefit the Australian financial system and economy.”

David Lavecky, the co-founder and CEO of blockchain firm CANVAS — one of the firms selected as a trial participant — told Cointelegraph they were selected to explore the potential benefits of using a CBDC in the context of tokenized foreign exchange (FX) transactions.

Lavecky notes that FX and remittance markets are “enormous,” with trillions of dollars traded daily. “And the surprising part is that it moves on very legacy rails at this slow speed.”

He sees CBDCs and digital currencies as having the potential to move currency much quicker and cheaper than these legacy systems, as well as allowing these markets to operate outside of normal business hours.

“For example, when you’re sending money to New Zealand from Australia, the cut-off was like 1 or 2 pm. So a lot of that friction and capability gets put away when you start moving into digital currencies and CBDCs.”

While many people object to CBDCs from a privacy standpoint, Lavecky notes that this issue would be one of the factors considered, but highlighted that this project was much more focused on examining potential use cases and deciding if the issuance of a CBDC is worthwhile.

“There’s been no decision made about whether a CBDC would be issued and what technology it would use; this is very much just research around capabilities and what’s possible really. So understanding that privacy is a concern, that’s something there can be solutions put forward to, as part of the pilot.”

Eli Ben-Sasson, co-founder and President of blockchain scaling technology firm StarkWare, which provides with its zero knowledge (zk) rollup engine StarkEx, sees the pilot program as “an important step in the journey” to incorporate blockchain into traditional finance, adding:

“What we very much need is a set of use cases that show people new digital currencies aren’t empty hype, but rather can do stuff we all need in our normal lives. The question is how to best do this.”

India’s central bank outlines digital rupee CBDC plans

India’s Reserve Bank outlined the pros and cons of a digital rupee as it looks to raise awareness around its CBDC project.

The Reserve Bank of India (RBI) has outlined the proposed features and reasoning behind its in-development central bank digital currency (CBDC) in a 51-page note published on Oct. 7.

The country’s central bank is looking to raise awareness of CBDCs, which are being developed by a number of central banks around the world, and to clearly define the objectives and choices as well as the potential positive and negative elements of introducing a digital rupee in India.

The document summarizes the key motivations for the issuance of an Indian CBDC, highlighting trust, safety, liquidity as well as settlement finality and integrity as key components of a sovereign digital currency.

A primary motivator for issuing a CBDC in India is to reduce the operational costs involved in managing physical cash in the country. The RBI also touts improved financial inclusion in addition to an increasingly resilient, efficient and innovative payments system.

Improved cross-border payments and settlements are also underlined through the promise of an offline feature for the CBDC, which would be beneficial in remote locations and in areas without a stable electricity supply or mobile network access.

The RBI has long held public blockchains and cryptocurrencies at arm’s length, with the document outlining its continued view that cryptocurrencies pose a significant risk to Indian consumers due to market volatility.

“These digital assets undermine India’s financial and macroeconomic stability because of their negative consequences for the financial sector.”

The RBI also highlighted its concern that the continued proliferation of cryptocurrencies would diminish its ability to regulate monetary policy and the monetary system, which the central bank holds to b a threat to financial stability in India.

A digital rupee CBDC is being touted to have the same benefits as public cryptocurrencies while “ensuring consumer protection” by avoiding what it described as “damaging social and economic consequences.”

The note goes on to outline the differences between a retail and wholesale CBDC, with the former serving the public sector while the latter would have restricted access catered toward financial institutions. The RBI hinted that there might be merit in introducing both forms into the Indian marketplace.

The Indian central bank also touched on the possibility of direct and indirect issuance and management. Direct issuance would see the RBI responsible for managing the entire system, while the indirect model would involve the use of intermediaries like banks and other payment service providers.

The RBI also noted that a token-based CBDC would be preferred for retail use given its similarities in use to physical cash. Account-based CBDC issuance would be considered for wholesale users.

The document also considered the potential infrastructure underpinning the digital rupee, highlighting conventional, centrally controlled databases or distributed ledger (blockchain) technology as the two options on the table:

“While crystallising the design choices in the initial stages, the technological considerations may be kept flexible and open-ended in order to incorporate the changing needs based on the evolution of the technological aspects of CBDCs.”

The note also touches on the role of physical currency in providing anonymity, universality and finality. Given that digital transactions would leave a trail, the degree of anonymity provided is still being assessed while the RBI suggested that reasonable anonymity for small-value transactions like physical cash may be a “desirable option” for a retail CBDC.

The ongoing development of a digital rupee will likely involve further stakeholder engagement and iterative design to produce a CBDC that suits a broad range of use cases. The Indian central bank also stressed its intent for the CBDC to complement current forms of money and provide additional digital payment avenues to users.

Australian pilot CBDC test for eAUD to commence mid-2023: RBA White Paper

The key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks and operational models for a CBDC in Australia.

Making it to the list of countries that intend to launch an in-house central bank digital currency (CBDC), the Reserve Bank of Australia (RBA) released a white paper outlining an elaborate plan for conducting a pilot project for eAUD.

On Aug. 9, 2022, the RBA announced a collaboration with the Digital Finance Cooperative Research Centre (DFCRC) to explore CBDC use cases for Australia. The joint research resulted in the launch of a project to test a general-purpose pilot CBDC. As outlined in the ‘Australian CBDC Pilot for Digital Finance Innovation’ white paper:

“The key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks, and operational models for a CBDC in Australia.”

The report on Australia’s CBDC pilot project is expected to be released in mid-2023 based on indicative project timelines, as shown below.

*Australia’s CBDC pilot project timeline. Source: rba.gov.au*

As a central bank, the RBA will be responsible for the issuance of eAUD, while the DFCRC will oversee the development and installation of the eAUD platform. Industry participants can join the pilot as use case providers once approved for implementation.

*Tasks assigned for all the parties involved in developing eAUD. Source: rba.gov.au*

The white paper suggests the use of Ether (ETH)-based private, permissioned instance. “Pilot participants will bear their own costs for the conception, design, development, implementation and piloting of use cases, if selected,” clarifies RBA.

On Sept 6, 2022, Australia’s ministerial department of Treasury approached the general public for their opinion on taxing cryptocurrencies. Assistant Treasurer Stephen Jones revealed the intention to exclude crypto assets from being taxed as a foreign currency.

Australian investors were provided with a window of 25 days to share their opinion on this decision, which expires on Sept. 30 — in the next four days. The legislation, if signed into law, will amend the existing definition of digital currency in the Goods and Services Tax (GST) Act to exclude it as a foreign asset.

South African Reserve Bank encourages friendly behavior with crypto

The banking authority said avoiding risk by cutting off crypto-involved clients may pose a “threat” to financial integrity.

The Prudential Authority of the Reserve Bank of South Africa sent out guidelines to its subsidiaries in an effort to prevent illicit activities, encouraging banks not to cut all ties with cryptocurrency.

It suggested that such an act could cause greater risk in the long run.

The official notice was signed by Prudential Authority CEO Fundi Tshazibana. In the past, certain South African banks had cut ties with crypto asset service providers (CASPs) — as they are called in the document — due to unclear regulations or a high-risk factor.

However, the notice highlights that risk assessment doesn’t mean dropping crypto entirely:

“Risk assessment does not necessarily imply that institutions should seek to avoid risk entirely (also referred to as de-risking), for example, through wholesale termination of client relationships which may include CASPs.”

It goes on to say such a move could even be a “threat” to general financial integrity, as it may limit the possibilities of treating issues such as money laundering.

In late July, the Reserve Bank released an assessment of risks within the local banking sector. According to the report, cryptocurrencies and virtual assets were included in the top 10 threats identified by the top local banks.

Prior to the report, the South African government released a plan that entailed the classification of crypto as a financial asset for regulatory purposes. The laws pertaining to the classification are expected within the next 12 months.

Crypto exchanges in South Africa reacted positively to this announcement. Many believe this move will drive adoption in the country. The country has seen major signs of interest and innovation in the crypto community, including “in real life,” or IRL, crypto use cases.

South Africa is home to crypto projects such as Bitcoin Ekasi, a township that introduced Bitcoin as a means of bolstering the financial independence of local underserved communities and Unravel Surf Travel, a South African-based travel pro-crypto travel company.