Blockchain for Banking News

Australia’s wholesale CBDC trials allowed access to non-banks

australian dollar cbdc

Today the Reserve Bank of Australia (RBA) published the results of a wholesale Central Bank Digital Currency (CBDC) trail, Project Atom, conducted with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys. The CBDC proof of concept that started late last year involved issuing the CBDC onto a blockchain-based platform for syndicated loans and enabled access to non-banks.

“Project Atom demonstrated the potential for a wholesale CBDC and asset tokenisation to improve efficiency, risk management and innovation in wholesale financial market transactions,” said RBA Assistant Governor Michele Bullock.

The primary demand for wholesale CBDCs is to use digital cash to instantly settle transactions on a DLT, delivery versus payment. An earlier trial raised questions about finality, efficiency, security and privacy, which the central bank said were addressed in the latest tests. The Project Atom PoC raised a new set of questions, including out of scope aspects such as scalability and cyber risks.

What’s different about this CBDC trial?

Several recent wholesale CBDC trials have been conducted, particularly by the Banque de France and the Swiss National Bank. Some have explored providing non-bank access. Project Atom is distinctive because it involved a two-tiered CBDC in which the central bank issued the CBDC to banks that are Exchange Settlement Account (ESA) holders. In turn, those banks act as sponsors for other non-bank participants to use the CBDC for capital market transactions. 

In many ways, this is similar to the current popular design model for retail CBDCs. 

Project Atom also shared a concept with the Bank of England, which recently created a new kind of omnibus account. In England’s case, this enables multiple banks to transfer money to a shared account and issue a common private digital currency backed by bank deposits at the central bank, a so-called synthetic CBDC. It’s one of the reasons why England sees no current need for a wholesale CBDC.

In Australia’s case, it used an omnibus account for the CBDC. So banks transfer money to the omnibus account, and the CBDC tokens are issued. The balance in the omnibus account is a central bank liability and matches the amount of CBDC issued. 

Additionally, the sponsor bank also hosts the wallet for its participants and has visibility into those participant transactions.

For the CBDC to be issued or redeemed, there’s a connection with Australia’s high value payment system RITS. The central bank noted that the design highlighted the resiliency benefits. If RITS goes offline, there could be no new issuance of CBDC, but the CBDC bank participants could continue to make payments using the tokenized money. 

However, some of the issues around a retail CBDC were raised because of the two-tier system design. In particular, if the CBDC is interest-bearing, non-bank participants may prefer to hold money in the wholesale CBDC resulting in the disintermediation of bank deposits. This was amongst a range of issues the central bank wishes to explore further.

Is a CBDC necessary?

The central bank considered the advantage of a CBDC for syndicated loans. If its high value payment system RITS is used, the bank seemed unconvinced a CBDC is necessary. However, the PoC demonstrated that digital money has significant advantages for DLT settlement to reduce the risks and complexities of on-chain/off-chain interactions. 

Hence, for a more diverse range of blockchain-based assets and processes, digital money is needed. In the central bank’s view, a high quality stablecoin is a viable alternative. 

It concluded that “the availability of a token form of money on a DLT platform could also act as a catalyst for innovation in the use of DLT for digitizing assets and business processes”.

Image Copyright: moovstock / 123rf