All you need to know about CBDC in Australia

What exactly is CBDC?

In the last several years, cryptocurrencies such as Bitcoin have seen a rise in popularity among traders and investors all over the globe. On the other hand, cryptocurrencies are not the only kind of digital currency. A digital version of fiat money that is issued and supported by a central bank is referred to as Central Bank Digital Currency, or CBDC for short. To put it another way, CBDC may be thought of as a digital representation of the real currencies that are in use today, such as the Australian dollar.

Why is it necessary to have CBDC?

As central banks throughout the world investigate the potential advantages and hazards of issuing digital currency, CBDC is receiving interest on a worldwide scale. The use of CBDC might result in a number of positive outcomes for both the professional trader and the average consumer, including an expansion of people’s access to financial services, an improvement in payment processing, and a decreased dependence on cash transactions. In addition to this, CBDC may provide central banks with the capacity to exert a greater degree of control over monetary policy by granting them the authority to do things such as introduce negative interest rates. Also, CBDC might assist in the fight against the laundering of money and other forms of financial crime.

CBDC in Australia (Australia)

Since 2017, the Reserve Bank of Australia (RBA) has been looking at CBDC, and in November 2019, it released a discussion paper on the subject. The Reserve Bank of Australia (RBA) highlighted three probable scenarios for CBDC in Australia in the paper, which are as follows:

In this hypothetical scenario, CBDC would be implemented as a backup payment system to ensure the continuous availability of cash-like payments in the event that the existing payment system is severely disrupted.

CBDC would be utilized for wholesale payments in this scenario, which would include financial institutions making payments to one another using CBDC. It is possible that the effectiveness and robustness of the financial system might both improve as a result of this.

Payments made using CBDC at retail locations: If this were to take place, CBDC would be utilized by the general public to make payments at retail locations. This has the ability to broaden access to financial services, enhance the effectiveness of payment methods, and lessen dependence on cash transactions.

The Reserve Bank of Australia (RBA) made an announcement in February 2021 that it had formed a partnership with the Commonwealth Bank, the National Australia Bank, Perpetual, and ConsenSys Software to investigate the possible applications and implications of a wholesale CBDC market through a proof of concept (POC) project. Using a distributed ledger technology (DLT) platform, the proof-of-concept will investigate the feasibility of using CBDC to facilitate the issue of a tokenized version of Australian dollars.

A report detailing the RBA’s results from the wholesale CBDC POC study was made public by the RBA in March of 2021. According to the findings of the paper, making use of a wholesale CBDC might potentially increase both the effectiveness and robustness of the financial system. The study did acknowledge, however, that the advantages of retail CBDC were not well defined and that further research and analysis were required.

Possible advantages of using CBDC in Australia

Improved Financial Inclusion CBDC has the potential to promote financial inclusion by facilitating access to digital payment methods for those who are presently dissatisfied with the services offered by conventional banking institutions.

Increased productivity in the processing of payments CBDC has the potential to increase productivity in the processing of payments by decreasing dependence on cash and increasing both the speed and cost of transactions. 

Reducing one’s dependency on cash: CBDC has the potential to lessen one’s reliance on cash, which might have a number of advantageous effects, including lowering the expenses incurred by enterprises for cash management and lowering the likelihood of cash-related crimes.

Better monetary policy CBDC has the potential to provide central banks with greater power over monetary policy, including the option to introduce negative interest rates. This might lead to an improvement in monetary policy.

The possible adverse effects of CBDC in Australia

While CBDC may have a number of possible advantages, there is also the possibility that it may have certain hazards, and these concerns must be taken into consideration. The following are some of the possible dangers. 

Cybersecurity threats: As CBDC would be a digital asset, there is a possibility that it would be more susceptible to hackers.

Privacy issues CBDC would be a digital asset, which may cause some people to be concerned about their privacy and the possibility of the government monitoring their activity.

Risks to operations The CBDC would call for considerable changes to the already-in-place financial system, which might result in dangers to operations.

Conclusion

The notion of CBDC is still relatively new, but it is quickly gaining traction throughout the globe as central banks investigate the possible advantages and drawbacks of issuing digital money. Since 2017, the Reserve Bank of Australia (RBA) in Australia has been doing research on CBDC and has been actively investigating the possibility of using wholesale CBDC in a proof-of-concept study.

Although there is the potential for CBDC in Australia to bring about great advantages, there is also the possibility that it may bring about major concerns, which must be taken into consideration. Cybersecurity threats, privacy problems, and operational hazards all fall under this category of dangers.

In general, the use of CBD in Australia is still a matter of debate and investigation to this day. Since the advancements in this field might have substantial repercussions for the economic system as a whole as well as the financial system specifically, it is essential for traders and investors to keep themselves informed on these developments.

It is also important to note that while CBDC has the ability to offer a variety of advantages, it is not without the possibility of presenting a number of difficulties. Prior to the implementation of CBDC, it is essential to give serious consideration to these problems and to make certain that suitable safeguards are put in place to reduce any possible dangers that may arise.

As a competent trader, it is very necessary to keep abreast of the latest developments in the financial business, including the possible applications of CBDC. Traders may position themselves to take advantage of new possibilities while reducing possible dangers if they continue to educate themselves about developing trends and technology and remain updated about such developments.