New research from Oz dampens good news for CBDCs

The summer of 2023 saw a bumper crop of good news for CBDCs, including transactions using the digital Yuan hitting $250 billion, a new CBDC consortium announced by Mastercard and the selection of partners for Brazil’s CBDC/digital Real pilot.

Research from Oz dampens good news for CBDCs

However, new research from the Reserve Bank of Australia (RBA) has cast doubt on the near-term viability of CBDCs, citing a range of legal, regulatory, technical and operational issues.

The RBA pilot ran 14 pilot projects with a range of industry participants over a 12-month period in an attempt to determine why and how CBDCs could add value in payments and banking, including programmable recurring payments, tokenised asset markets and offline payments.

Results from this exercise highlighted the need for further analysis of the legal framework for a CBDC, as well as consideration of the regulations that could apply to any new business models.

The pilots also highlighted challenges in integrating a CBDC platform with industry applications: these challenges have implications for future deployment models.

“Given the many issues that are yet to be resolved, any decision on a CBDC in Australia is likely to be some years away,” the report states.

“The RBA research highlighted challenges in integrating CBDCs with existing industry systems, as well as legal, regulatory and technical issues.”

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Amid further positive news for the crypto/stablecoin industry, including a 50 percent increase in the price of Bitcoin so far this calendar year, the launch of a new stablecoin by PayPal and the recent supreme court ruling in favour of Ripple against the US Securities and Exchange Commission (SEC), this research from the RBA is a welcome and sobering reminder of the complexities inherent in the large-scale adoption of digital money.

At Payments Cards & Mobile, we have been warning of this complexity for more than two years, and late last year we were joined by payments guru John Chaplin who noted the difficulty of getting banks to agree to the introduction of CBDCs if that meant that central banks became system participants, rather than providing oversight and regulation.

The attractions of CBDCs – in terms of faster settlement and lower costs to all parties – are clear. However, their challenges are less frequently discussed and the RBA’s work is a timely reminder that their introduction – if it happens at all – remains some time off in the future.