The Reserve Bank of Australia and Treasury have released a paper entitled ‘Central Bank Digital Currency and the Future of Digital Money in Australia’, which delves into the potential implementation of Central Bank Digital Currencies (CBDCs) in Australia.
The document evaluates the implications of declining cash use, new payment technologies, and privately issued digital currencies such as stablecoins. It considers both retail and wholesale CBDCs, examining their potential benefits and legal implications for the country’s monetary system and economy.
A hugely powerful – and potentially dangerous – tool for the future of money itself, and one that has attracted significant political scrutiny in the United States and beyond, this article outlines the position in Australia and where to from here.
Background
In Australia, there has been a notable decline in the use of physical cash as the general population increasingly adopts digital payment methods. Simultaneously, the rise of private digital currencies like cryptocurrencies poses new challenges to traditional financial systems.
In response to these shifts, and along with other mature economies e.g. the United Kingdom, the RBA and Treasury are exploring whether CBDCs could provide a state-backed digital alternative that ensures financial stability and innovation while addressing the regulatory challenges posed by private digital currencies. This paper outlines potential use cases for both retail and wholesale CBDCs, discussing how Australia might prepare its monetary infrastructure for the future.
CBDCs offer several compelling advantages, particularly in the context of declining cash usage and the growing influence of digital currencies. Introducing a CBDC could ensure Australia remains at the forefront of global financial technology developments and offers solutions to challenges emerging from new digital assets.
- Enhanced payment system efficiency and security: A CBDC could streamline payments, reduce transaction costs, and provide greater security for digital payments, offering the efficiency of private platforms with the oversight of a central bank. This would also bolster resilience against cybersecurity threats and operational disruptions.
- Support for financial inclusion: A CBDC could provide financial access to underserved populations, particularly those who are unbanked or have limited access to the current banking infrastructure. CBDCs designed for offline use would allow individuals in remote areas e.g. central Australia with limited banking services and documentation to engage in digital transactions.
- Promoting innovation and competition: CBDCs can open up the payments market to new entrants by creating a central infrastructure that startups and smaller institutions can leverage. This may encourage competition and drive further innovation in payment systems, especially through the use of programmable money and smart contracts.
- Maintaining monetary sovereignty: As private digital currencies become more common, there is a growing risk that governments may lose some control over their domestic currency. A CBDC would allow Australia to retain its ability to implement effective monetary policy, ensuring that the RBA continues to have influence over inflation, interest rates, and economic stability.
- Improved cross-border payments: CBDCs offer the potential to vastly improve cross-border payments, reducing the time and cost of international transactions. By participating in international CBDC projects, Australia could help shape the future of global finance while making its economy more efficient and interconnected.
RBA / Treasury Paper
The paper highlights the need for legal and regulatory changes to accommodate the introduction of CBDCs, particularly in areas of financial regulation, consumer protection, and privacy laws.
On the retail front, the following challenges arise:
- Legal tender status and financial regulation: Introducing a retail CBDC would require amendments to existing laws, including the Reserve Bank Act 1959 and the Payment Systems (Regulation) Act 1998. These laws must be updated to define the CBDC as legal tender and to outline its legal status in comparison to traditional cash and digital bank deposits.
- Consumer protection and privacy: The rollout of a retail CBDC would raise significant issues concerning privacy and data protection. A balance must be struck between maintaining user anonymity—similar to cash—and ensuring compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. Revisions to the Privacy Act 1988 would also be required to safeguard sensitive financial information.
- Banking stability: A retail CBDC could pose risks to banking stability by encouraging deposit flight from commercial banks. This would require regulatory reforms to ensure that banks remain stable, potentially involving changes to the Banking Act 1959 and Australian Prudential Regulation Authority (APRA) guidelines.
On the wholesale front, the following challenges are:
- Securities and settlements law: A wholesale CBDC would require integration with existing settlement laws under the Corporations Act 2001 and the Payment Systems and Netting Act 1998. Wholesale CBDCs will facilitate faster, more secure transactions in large-scale markets, but this shift requires careful legal adjustments to accommodate distributed ledger technology (DLT) e.g. blockchain and tokenised asset settlements.
- Cross-border legal harmonisation: Cross-border transactions will present unique legal challenges, particularly in terms of aligning Australian CBDC regulations with international standards. This will involve revisions to settlement rules, data sharing, and anti-money laundering frameworks to ensure international compliance.
- Liability and risk management: As wholesale CBDCs would operate on new digital infrastructures, new laws governing operational risks and liabilities for transaction failures, cybersecurity, and fraud would need to be introduced.
There are other challenges with CBDCs which are not covered in detail in the paper. The fact that they can be programmed for certain outcomes e.g. where and how digital money can be spent, are potential – though unlikely – ethical grounds that need to be addressed to gain mainstream retail adoption.
Next steps
The RBA and Treasury have outlined a detailed roadmap for further exploration of CBDCs. Over the next three years, they will focus on the following:
- Public consultation: A structured public engagement process starting in 2025 will solicit diverse views on retail CBDCs.
- Research and pilot programs: The RBA will continue conducting experiments, building on its 2023 pilot project. Industry and academic advisory forums will also be established to assist in further research.
- Wholesale CBDC focus: The RBA will prioritize its research on wholesale CBDCs, particularly in relation to tokenized asset markets and settlement processes.
- International collaboration: The RBA will maintain and expand its involvement in international CBDC projects to explore cross-border payment solutions and other mutual interests in global digital currency developments. This includes collaborating with other central banks and participating in initiatives such as Project Acacia, which examines the settlement of tokenized assets.
- Regulatory sandbox enhancements: Treasury will work on improving the regulatory sandbox arrangements to support innovation in the financial sector and ensure regulatory clarity around stablecoins and digital assets.
Several global jurisdictions have made progress in CBDC development, providing valuable lessons for Australia. China’s digital yuan (e-CNY) is one of the most advanced CBDCs in the world. Its comprehensive legal framework addresses issues of data privacy, financial stability, and integration with the country’s existing financial systems. The People’s Bank of China has also maintained tight control over private digital platforms, ensuring regulatory oversight across digital payment systems. The European Central Bank (ECB) is in the research phase for its digital euro. The ECB has been focusing on privacy protection and consumer safety, especially with caps on CBDC holdings to prevent disintermediation. The legal framework in Europe has been structured to ensure compliance with GDPR (General Data Protection Regulation) and the prevention of financial crimes, setting a high standard for privacy.
Conclusion
The introduction of a CBDC in Australia would require significant legal reforms across banking, privacy, and consumer protection laws. However, the potential benefits—ranging from improved payment efficiency and financial inclusion to enhanced financial stability—make this a worthwhile endeavour. By learning from international experiences in China, Europe, and beyond, Australia can craft a regulatory framework that harnesses the advantages of CBDCs while ensuring financial and legal safeguards are in place. The continued collaboration between the RBA, Treasury, and international bodies – together with its consultation from the public in 2025 – will be crucial to shaping Australia’s future in digital currencies.
