$3b a year: eAUD cost savings for banks revealed
The Reserve Bank’s market trials of an eAUD – as its proposed central bank digital currency is known – rightly focused on applications that could deliver the biggest efficiency gains to the Australian economy.
These did not include consideration of issuing some form of “digital cash” in the retail market. The RBA sees the consumer payments system as highly efficient, and wants to avoid competing with commercial bank deposits, which would destabilise the financial system.
The RBA has not concluded whether an eAUD will become a reality in Australia. David Rowe
Rather, the RBA has been exploring – alongside market participants including the banks – whether creating a CBDC could improve processes that occur in the background of the financial system, chiefly making payments and settling transactions.
It is also interested in supporting a future of “tokenised” assets, a digital version of a physical asset that allows it to be traded and paid for on programmable platforms, including various blockchain ledgers.
Settlement and payment is a wonky area but plays a critical economic function by finalising trades across huge markets, from equities to foreign exchange to bonds. But current processes are slow and expensive.
The cost comes because banks and other market participants have to hold collateral or financial capital to protect against the risk of a trade failing to go through, like if the payment fails. Meanwhile, the process of shifting ownership title can take several days.
The RBA and Digital Finance Cooperative Research Centre report on 14 pilot projects, released on Wednesday, suggests an eAUD – provided as a new “wholesale” form of central bank money to market players who deal directly with the RBA – could help to make
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