Today the Reserve Bank of Australia announced its planning a proof of concept (PoC) for a wholesale central bank digital currency (CBDC) based on distributed ledger technology (DLT), or more specifically, Ethereum blockchain technology.
It involves partnering with the Commonwealth Bank, the National Australia Bank, Perpetual and U.S. blockchain firm ConsenSys. The project is predicted to be completed by the end of this year, with a report to be released in the first half of next year.
The initiative will focus on tokenizing syndicated loans, including their funding, settlement and repayment. Apart from automation and programmability, the trials will also explore the impact of atomic delivery versus payment (DvP).
In wholesale markets, securities settlements are often set at two days, and in the interim, there is a risk that the counterparty, the buyer, might have financial problems and not pay. By making payment at the same time as delivering the title to the asset, in this case the syndicated loan, the counterparty risk goes away. Using atomic transactions, if the payment fails, both sides of the transaction fail, so the buyer does not get the asset title.
“With this project we are aiming to explore the implications of CBDC for efficiency, risk management and innovation in wholesale financial market transactions,” said Reserve Bank Assistant Governor, Michelle Bullock. “While the case for the use of a CBDC in these markets remains an open question, we are pleased to be in collaboration with industry partners to explore if there is a future role for a wholesale CBDC in the Australian payments system.”
One of the reasons for questioning the need for DvP is the vast majority of current systems involved netting between banks. This often means that less cash is required at a single point in time, and there are far fewer payment transactions as well.
Etnereum appearing in several CBDC projects
Over the past few weeks, ConsenSys has announced involvement in multiple projects with central banks, pointing to several central banks exploring Ethereum technology. Last week, Consensys declared it’s developing a PoC with the Bank of Thailand for retail CBDC, or digital Baht. Up to now, its CBDC initiative used R3’s Corda technology. ConsenSys is also partnering with the Hong Kong Monetary Authority (HKMA) for the cross-border payment trial with Thailand, as part of the second phase of Project Inthanon-LionRock.
In Europe, Consensys announced a collaboration with Societe Generale Forge on CBDC tests with the Banque de France. Unlike the projects with the Bank of Thailand and HKMA, in this case, Societe Generale Forge is one of eight groups working with the central bank. And ConsenSys is one of several companies that Societe Generale Forge is working with. So in total, dozens of firms are working with the French central bank.
Accenture has partnered with numerous central banks, and on most occasions, has used R3’s Corda.