Reserve Bank of Australia Warns CBDC Capable of Displacing Australian Dollar
The Reserve Bank of Australia (RBA) confirmed receiving multiple suggestions on use cases despite the eAUD program running on a pilot basis. RBA considers while the Central Bank Digital Currency (CBDC) is piloting, the proposals received from the finance sector exceed 140 use cases.
CBDC Popularity in Australia
RBA cites the high interest in eAUD, demonstrating the potential of CBDC displacing the AUD and Australians likely to avoid conventional banking entirely. In his speech, RBA assistant governor Brad Jones considers the popularity of eAUD as portrayed in the pilot program has the potential to alter the Australian economy. Jones’ address at the ongoing central bank conference revealed RBA’s surprise at the widespread interest in the eAUD.
Jones’ speech illustrates that financial entities interested in use-cases exceeded 80 since RBA announced the pilot program for CBDC on August 9. He added that the interest was expressed in various coverage, including offline remittances, electronic commerce, and government payments.
Jones disclosed that the pilot eAUD program team would examine the proposed use cases. The assessment is fundamental to determine the use cases the team will incorporate in the pilot phase scheduled for early 2023. However, the published report on the pilot eAUD program is planned for mid-2023.
Potential Risks in CBDC Revealed
Jones warned that CBDC has inherent vulnerabilities that could hurt the Australian economy. Jones illustrated that the Australian CBDC could impose liquidity challenges on the banks, particularly when it becomes the preferred holding mode.
Jones warned that the eAUD could disrupt the current savings account deposits. He pointed out that 60% of commercial banks’ funding is sourced from savings accounts’ deposits. A situation where more Australians prefer CBDC to the AUD could deny banks access to capital. The inadequacy of capital to support banks’ lending would hinder RBA’s ability to enforce monetary policy adjustments effectively. Also, Jones noted that the preference for holding funds in the risk-free eAUD could trigger bank runs as Australians withdraw deposits in savings accounts.
Potential Benefits of CBDCs
Jones suggests that eAUD has the potential to offer privacy benefits since RBA has no incentive to leverage personal data for commercial gains. Unlike private organizations, CBDC will safeguard the monetary sovereignty of Australians. Jones indicates that Australians will lose such safeguards if privately-held stablecoin and foreign CBDC exploit the domestic vacuum.
Jones lauded the eAUD potential to lower costs for end-users, increase efficiency and reinforce the resilience of current payment systems. Jones concluded his address by reiterating RBA’s commitment to banknote issuances provided Australians consider them a public good.
Critics of the CBDCs introduction indicated they might phase out banks. Also, the critics are concerned that the RBA may replicate Nigeria’s move on December 6 to cap daily and weekly withdrawals to boost eNaira uptake.
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