Australia's central bank partners to launch CBDC pilot project

The Reserve Bank of Australia has partnered with several institutions in the financial sector to launch a "live pilot" for the central bank's digital currency.

"The project involves selected industry participants demonstrating potential use cases for a CBDC using a limited-scale pilot CBDC that is a real digital claim on the Reserve Bank," the RBA said.

The partners include the Commonwealth Bank of Australia, Australia and New Zealand Banking Corp, Mastercard and other fintech companies.

The RBA also announced that it had signed a partnership agreement with the Digital Finance Cooperative Research Centre (DFCRC), a Sydney-based financial research institute, to research the "potential use cases and economic benefits of a central bank digital currency (CBDC) in Australia." The DFCRC helped the RBA select industry players that would participate in the pilot project.

The project will start on March 31 and conclude on May 3. A final report on the findings, including an evaluation of the use cases proposed by participants, will be published on June 30. Tax automation, offline payments and a CBDC for reliable Web3 commerce are among the 14 cases being piloted.

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RBA assistant governor for financial systems Brad Jones explained that the pilot and research with the DFCRC would be done in parallel to achieve two purposes, offering hands-on learning opportunities for the financial industry and improving policymakers' understanding of how a CBDC could support Australia's economy.

David Lavecky, whose blockchain firm CANVAS has been selected for the pilot project, said his company is tasked to explore the use of a CBDC in tokenized foreign exchange (FX) transactions.

The CANVAS CEO described the FX and remittance markets as "enormous," with daily transactions hitting trillions of dollars. Lavecky pointed out that transactions in these markets still occurred at a slow speed.

He said CBDCs and other digital assets have the potential to move funds faster and cheaper than "legacy" systems. The use of digital currencies will also enable these markets to operate outside of standard business hours.

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

Lavecky acknowledged privacy concerns related to the use of CBDCs and said it would be one of the factors examined by all parties involved. However, Lavecy said the project would be more focused on determining whether it would be worthwhile to roll out a CBDC by evaluating its potential use cases.

Eli Ben-Sasson, co-founder and president of StarkWare, which provides the network for the RBA's pilot, described the project as "an important step in the journey" to integrate blockchain in traditional finance.

Ben-Sasson said several beneficial use cases can prove to the public that digital currencies are not "empty hype." He said it was important to understand the "best" way to approach the project.

StarkWare supports the RBA's project with its zero-knowledge rollup engine called StarkEx. Zero-knowledge rollup is a method to improve the efficiency of an underlying network — Ethereum in the RBA's case — by processing transactions on a separate network and then compiling them together before sending them back to the main network.

The tech utilizes zero-knowledge proofs, meaning that transactions can be verified without providing details.

Other countries interested in CBDC

Countries across the globe have expressed interest in developing their own CBDCs. For instance, China began rolling out the digital yuan last year. The Chinese government also encourages locals and visitors to use the digital yuan for various daily transactions.

Compared to China, the U.S. and Britain are slightly behind in terms of CBDC adoption. However, U.S. President Joe Biden has already created a framework for crypto regulation, which also involves the establishment of the digital dollar. Meanwhile, a deputy governor at the Bank of England admitted the U.K. is not ready to issue a CBDC due to the lack of tech resources.