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Australia’s central bank launches digital currency pilot | Crypto

Reserve Bank of Australia says year-long trial will explore “innovative use cases and business models” for currency.

Australia’s central bank has unveiled plans to examine the potential economic benefits of introducing a central bank digital currency (CBDC).

The Reserve Bank of Australia (RBA) said in a statement on Tuesday it would carry out a year-long pilot project to explore “innovative use cases and business models” for a CBDC and gain a better understanding of technological, legal and regulatory considerations.

The RBA will partner with the Digital Finance Cooperative Research Center (DFCRC), a government-backed industry group, for the project, which will invite industry players to develop “specific use cases” that demonstrate how a CBDC could provide innovative payment and settlement services to households and businesses.

The result of the pilot will inform ongoing research into the desirability and feasibility of a CBDC in Australia, the RBA said.

“This project is an important next step in our research on CBDC,” RBA Deputy Governor Michele Bullock said in a statement. “We are looking forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia.”

About 100 countries are considering rolling out CBDCs, according to the International Monetary Fund, with a number of jurisdictions including China and the Bahamas already distributing their digital currencies among the public.

CBDC proponents say the nascent technology will allow for faster and cheaper transactions, promote financial inclusion, and give central banks greater flexibility in monetary policy.

While sharing some similarities with cryptocurrencies, CBDCs differ from digital tokens like Bitcoin as they are controlled by a central authority.

Cryptocurrencies operate on peer-to-peer networks known as blockchains, which are decentralized so that no single person or group exerts control.

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Reserve Bank to trial digital currency in ‘limited-scale pilot’ scheme

The Reserve Bank of Australia will trial its own digital currency as part of a research project to evaluate the future of Central Bank Digital Currencies (CBDC) in Australia.

Unlike well known cryptocurrencies such as Bitcoin and Ether, which were created by private entities or individuals, a CBDC is issued and controlled by the central bank just like cash and electronic stores of sovereign currency sitting in bank accounts.

The research project the RBA is undertaking in collaboration with the Digital Finance Cooperative Research Center (DFCRC) will focus on the uses for, and potential economic benefits of, a CBDC.

“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 period of time and is intended to involve a pilot CBDC that is a real claim on the Reserve Bank,” the RBA noted in a media release.

“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.”

RBA deputy governor Michelle Bullock said this project is “an important step” on the path to a potential Australian CBDC.

“We are looking forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia,” she said in a statement.

Dr Andreas Furche, the chief executive of the DFCRC which is undertaking the research project with the RBA, said the doubts around CBDCs are mainly focused on how useful they could actually be, and in what ways.

“CBDC is no longer a question of technological feasibility,” he argued.

“The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximize those benefits.”

The Reserve Bank said Treasury is involved with the project, which will soon invite industry participants to pitch specific uses for a CBDC that might be selected for trials in the pilot.

The project will then help to understand some of the technological, legal and regulatory issues that arise from a CBDC.

A report on the results of the project is expected in about a year’s time.

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