vy RESERVE BANK OF AUSTRALIA

Speech

Financial Innovation and the Future of CBDC
in Australia

Brad Jones I*!

Assistant Governor (Financial System)

Speech at the Intersekt Conference
Melbourne - 18 September 2024

'Money shapes economies, economies shape nations, nations shape history.' This quip from Larry
Summers, though pithy, contains a kernel of truth. It is equally true that through history, bursts of
technological innovation have intersected with changing needs of the economy to generate profound
implications for society. Look no further than the introduction of paper money to replace copper coin
in China's Song dynasty, the development of double-entry ledgers in Renaissance Europe, the laying
of the transatlantic cables in the 1850s and the dematerialisation (electronification) of securities half
a century ago.

Fast forward to today, rapid innovation in technology and structural change in the financial economy
is again raising important questions about whether our monetary arrangements are fit for purpose -

this time in the digital age.

It is great to be here at Intersekt. This is an important forum where industry and members of the
policy making and academic community can come together to discuss issues that will shape our
financial future. It is also timely because this morning the RBA and Treasury will publish their first
ever joint paper - part stock take, part roadmap - on central bank digital currency (CBDC) and the
future of digital money in Australia. This is the latest initiative to emerge from the RBA's expanding
work program on the future of money. I am here this morning to highlight three key messages from

this work.

First, and with the strong endorsement of the Payments System Board, I can confirm that the RBA is

making a strategic commitment to prioritise its work agenda on wholesale digital money and

infrastructure - including wholesale CBDC - rather than retail CBDC. At the present time, we assess
the benefits to the economy as more promising, and the challenges less problematic, for a wholesale
CBDC compared to a retail version. This recognises that unlike a retail CBDC that would be issued for
use among the public, a wholesale CBDC would represent more an evolution than revolution in our
monetary arrangements. It also recognises the stabilising role of central bank money in the
settlement of wholesale market transactions, particularly in markets that are (or could be)

systemically important - a point emphasized in international standards.

Second, we are publicly committing to a three-year applied research program on the future of digital
money in Australia. This has a number of elements. Our most immediate priority is to launch a new
project with industry on wholesale CBDC and tokenised commercial bank deposits. The focus will be
on understanding how new ledger arrangements and concepts like 'programmability' and 'atomic
settlement' in tokenised markets could unlock benefits for the Australian financial system and wider
economy. We don't have all the answers here, so look forward to engaging with industry partners

who have an ability and appetite to innovate with the national interest in mind.

Third, the view of the RBA and Treasury is that if a public policy case ever emerged in favour of
issuing a retail CBDC, the Australian Government would be the ultimate decision authority and it
would almost certainly require legislative change. This would also be in keeping with the recent
international experience. In the case of wholesale CBDC, the decision making and legislative
implications would depend on how transformative the new arrangements were. But in either case,

you should expect close engagement between the RBA, Treasury and Government.

(Digital) Money in Australia Today

At this point a quick stock take of our current monetary arrangements is in order. There are three
forms of money in Australia today - physical cash, Exchange Settlement (ES) balances and
commercial bank deposits (Graph 1). The latter two are digital, by which I mean balances exist only

on electronic ledgers.

Graph 1
Money in Australia

Stl Digital St

Bf Not digital
2 2
1 1
0 0

Physical Exchange Settlement Commercial
cash (ES) balances bank deposits
Source: RBA.

Commercial banks issue deposits that are accessible to the public. ES balances are issued by the RBA
to eligible financial institutions for monetary policy and financial stability purposes, including to
facilitate the settlement of payments. !*! These arrangements form our 'two-tier' monetary system,
which reflects the comparative advantage of the public and private sectors. Central banks don't have
a comparative advantage in providing customer-facing services directly to households and firms.
Rather, they focus on supplying foundational public goods (the 'base tier'), including a safe
settlement asset, essential infrastructure and a level playing field for competition. This enables
private innovation in money and payment services (the 'top tier'), which can lead to more value at
reduced cost for households and firms.

Central bank money is available to the public but takes a physical form (i.e. banknotes), and fewer
Australians are choosing to transact in it: the share of transactions occurring in cash declined from
62 per cent to 13 per cent between 2010 and 2022 (Graph 2). As elsewhere, the Australian public

holds virtually all their money in bank deposits.

Graph 2

Trends in Cash Payments"
Share of number of payments

% %
Germany Euro area
80 80
Australia
60 ss 60
~>.,_Netherlands
40 Sweden = 40
\ A
2) 20
Norway
I I I I I I I ! 1 I I I I I
2011 2015 2019 2023

* Observations are not directly comparable due to differing survey

methods and inclusions across economies.

Sources: Bank of Canada; Colmar Brunton; De Nederlandsche Bank;
Deutsche Bundesbank; European Central Bank; Federal Reserve
Bank of San Francisco; Ipsos; Norges Bank; Roy Morgan
Research; Sveriges Riksbank.

It is reasonable to ask at this point: if, as in many other advanced economies, digital money is

already so dominant in Australia, then what is the big deal about CBDC?

At one level, my sense is that much of the attention, if not intrigue, follows from CBDC connecting to
deeply held views in parts of the community about the rights of citizens and the role and obligations
of the state. This includes issues of safety, privacy, freedom, sovereignty and even geopolitics -
issues that put us squarely in political economy territory, which is not exactly the natural habitat of
most central bankers (!). This might also explain why public debates over retail CBDC have been

hotly contested in some parts of the world.

Retail CBDC Considerations in Australia

A retail CBDC that would be available for use among the general public would represent a significant
change to Australia's financial arrangements. Our assessment is that the potential benefits of a retail

CBDC generally appear modest or uncertain at the present time, relative to the challenges it would

introduce. Most of the arguments made internationally in support of a retail CBDC (set out in bold
below) reflect issues that are either of limited relevance to Australia, or where it is not obvious that a
retail CBDC would best address them.

Offline resilience. The digitisation of payments and commercial activity has yielded significant
economic efficiency gains, but also made us vulnerable to disruptions to our digital infrastructure
(Graph 3). Many countries are uplifting their crisis preparedness arrangements in response to
national security threats and the risk of natural disasters. Social cohesion, not just economic
disruption, is foremost in mind here. !?1 However, the processing of payments during electricity or
telecommunication outages requires an offline capability first and foremost; this needn't require a
retail CBDC per-se. Though more work is needed, some card payment terminals operated by
merchants in Australia are already capable of accepting payments offline. Some countries are also
reconsidering the back-up role that physical cash might play for short-term transactional purposes,

albeit access to and acceptance of cash still requires supporting offline capabilities.

Graph 3

Duration of Retail Payment Outages

Percentage of planned available
hours, September quarter 2021 to March quarter 2024

Fast transfers

Online banking

Next-day transfers

Branches

ATMs

Making card payments*

Accepting card payments*

0.00 0.05 0.10 0.15 %

Outages in making card payments prevent card holders from making payments
to anyone. Outages in accepting card payments prevent businesses from
receiving payments from anyone.

Source: RBA.

2X

Monetary sovereignty. If cash usage continues to decline, it has been suggested in some
jurisdictions that a retail CBDC may be needed to preserve monetary sovereignty. {41 Currency
substitution can certainly compromise the policy objectives of a domestic central bank, where activity
occurs in a currency and at interest rates outside its control. But the history of currency substitution
suggests this risk is gravest in economies where institutions and the rule of law are weak, and
residents and foreign investors have good reason to question the integrity of the domestic currency -
conditions not apparent in Australia. And while it is possible that a BigTech firm launches another
global stablecoin initiative in an effort to bundle their digital services with payment services, there is
now a concerted international effort to closely regulate any such move. Should the United States ever
issue a retail CBDC, some countries might reconsider their own position given the global role of the
US dollar. But there is no momentum behind a retail CBDC in American political or policy circles. And
aside from the legal impediments, I find it inconceivable that a digital Chinese yuan or digital euro

would circulate as the currency of choice for Australians.

'Singleness' of central bank and private bank money. A key feature of our monetary
arrangements is that bank deposits are interchangeable with one another and central bank money,
on a dollar-for-dollar basis (this is the 'singleness' concept). This spares households and merchants
from wasting resources in repricing the credit risk of different issuers - a lesson learned the hard way
from the chaotic 'wildcat' free-banking era in the United States. It has been suggested that if physical
cash was no longer available to the public, a retail CBDC may be needed to ensure private money
retained its value because it would still be interchangeable at par with central bank money. However,
most central banks have no plans to eradicate physical cash. And central banks already support the
singleness of money in various ways, including by settling banks' net payment claims 'at par' in

central bank money.

Safety. A retail CBDC would clearly be free of credit and liquidity risk, and would mean households
still had the choice of transacting in central bank money even in circumstances where cash was
unavailable or usable (such as online transactions). But the international evidence that households
value the safety of central bank money is mixed in advanced economies. Cash holdings often increase
during periods of economic uncertainty, though it is unclear if this owes to the assurance found in the
physical properties of cash (it can be touched), or to its risk-free status (or both). Survey-based
research by RBA staff suggests that Australian households would not attach economic value to the
risk-less nature of a CBDC. [51 This could reflect the limited experience of Australians with bank
failures and/or the range of measures to support public confidence in commercial bank deposits,
including deposit insurance, depositor preference, a robust regime for bank regulation and

supervision and the RBA's role as lender of last resort.

Privacy. International views on the privacy implications of retail CBDC vary widely - some fear a
CBDC could be used as a surveillance tool of the state, while others find comfort in central banks not
having incentives to exploit personal transaction data in the manner of private service providers. In
any event, few central banks are considering a version of retail CBDC that would be fully anonymous
given their responsibilities to mitigate financial crime. Research by RBA staff also suggests Australian
households would attach very limited value to accessing a form of money that makes transaction
data available to the RBA instead of a commercial bank. '°1 This suggests privacy considerations

should not be determinative in any decision on a retail CBDC.

Efficiency and cost. Countries without a fast payment system are often most interested in retail
CBDC. But we are fortunate in Australia to have the New Payments Platform (NPP) that enables
payments to be processed and settled in near real time on a 24/7/365 basis (Graph 4). Regulation
and competition have also lowered digital payment costs in Australia over the past two decades
(Graph 5). 71 That said, the extent to which a retail CBDC could further reduce payment costs is yet
to be fully assessed and would depend on design choices. We are sympathetic to the idea that a
retail CBDC could spawn a range of new payment services, though this was part of the motivation for

last year's pilot project which did not surface compelling retail use cases. [*!

Graph 4

Use of Fast Payments Systems
Transactions per capita, annualised

no UPI Swish no
(India) (Sweden)
100 100
FPS
(Hong Kong)
80 80

NPP
(Australia)

60 60

MobilePay*
(Denmark)

40 40

FAST
(Singapore)

FPS

20 20

12 3 4 5 6 7 8 9 10 11 12 13 14
Years after launch

*  MobilePay data unavailable from 2022 onwards.

Sources: FPSL; Getswish; HKICL; MAS; MobilePay; National statistics
agencies; NPCI; RBA; United Nations World Population Prospects.

Graph 5
Retail Payment Costs in Australia*

%I International comparison** Domestic Fees by Card %

American Express

2.5 2.5

Diners Club

2.0 2.0

1.5 1.5
Mastercard and Visa

10 (debit and credit) 10

0.5 0.5

eftpos
0.0 I PEiyttr tte titi tet pti pi tyitt 0
x
g s 2006 2015 2024

Australia

* Comparing merchant service fees for all payment cards as a percent
of transaction values acquired.
** Data for Australia and the US is as of 2023. UK data is as of 2018.

Sources: Nilson Report; RBA; UK PSR.

Financial inclusion. A final argument sometimes offered in favour of a retail CBDC is that it could
open up access to financial services. Yet this argument has most relevance in emerging market
economies - Australian households are already among the most banked societies in the world
(Graph 6). Research by RBA staff has also found that among Australians who continue to rely on
physical cash, issues like poor internet access and low confidence with digital modes of transacting
are particularly relevant. {21 Further work is therefore needed to understand how a retail CBDC could

address these issues - at the present time it is not obvious.

Graph 6
Bank Account Penetration in the G20*

2017
% %
80 80
VITA TA
TWH A
MYTH LLTALT TA
PUT

Percentage of the population aged 15 years and above with a
bank account.

Sources: RBA; World Bank.

If the potential benefits of a retail CBDC in Australia appear modest or uncertain at present, what
about the drawbacks? Three stand out: higher borrowing costs, bank runs and challenges with

monetary policy transmission and implementation.

Bank funding costs. Australia has a bank-based financial system. The share of bank funding
sourced from domestic deposits has risen to around 60 per cent (Graph 7), and is higher again for
small and regional banks that have limited (if any) access to wholesale markets. Should households
place their liquid assets in a retail CBDC rather than bank deposits, banks would have to offer higher
deposit rates and/or tap more volatile and costly sources of funding - costs that could be passed on
to borrowers. Banks could potentially compete harder for low-cost deposits by providing loans only to
the very highest quality borrowers, but this would cut off credit access to otherwise creditworthy
borrowers. And while central banks might consider offsetting a tightening in financial conditions with
looser monetary policy, the idea that central banks should furnish banks with cheap loans as
compensation for losing low-cost household deposits is more objectionable - it would raise a litany of
other issues, moral hazard among them. [121

Graph 7

Banks' Funding Composition*
Share of total funding; debt is on a residual maturity basis

% %
Domestic deposits
60 60
50 50
40 40
30 30
Long-term Short-term debt**
20 debt 20
TFF
10 10
ae
a Equity i
0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 n it t i 0

2006 2009 2012 2015 2018 2021 2024

Adjusted for movements in foreign exchange rates.
Includes deposits and intragroup funding from non-residents.

Sources: ABS; APRA; Bloomberg; LSEG; RBA.

*

kK

Bank runs. A more significant concern is that a retail CBDC could increase the risk, or amplify the
effects, of bank runs. In times of stress, access to a risk-free CBDC would increase the ability of
panicked households to switch out of bank deposits en masse. In Australia, most bank deposits are
held by households and redeemable on demand (Graph 8). The events at Silicon Valley Bank last
year offered a cautionary tale over the risk of rapid-fire bank runs in the digital age - one that could
be magnified if bank deposits were convertible into CBDC at the touch of a smartphone. !11!

Graph 8
Banks' Deposit Funding

$b By depositor By deposit type $b

i Households* WAt-call***
M Businesses Term

3,000} ws Financial** 3,000
Hi Government

2,000 2,000

1,000 1,000

1 1 i i 1

2020 2022 2024 2020 2022 2024

* Includes deposits from housing loan offset accounts.

** 'Financial' refers to financial companies, such as superannuation

funds and insurance companies.

*** Includes deposits in housing loan offset accounts and non-interest
bearing deposits.

Source: APRA; RBA.

Under a simplistic hypothetical scenario, RBA staff examined the effects on bank liquidity if Australian
households simultaneously transferred $5,000 from their deposit account into a retail CBDC
(assuming this was the upper holding limit), where there were no offsetting actions from banks or
the central bank. Though a purely illustrative exercise, this was shown to reduce banks' liquidity
buffers by 40-60 per cent, and could put them close to minimum internal thresholds (Graph 9). [12
Central banks have examined measures that could forestall or limit the effects of bank runs involving
CBDC, including limits on holdings, penalties on bank deposit withdrawals and negative interest rates
on CBDC in periods of stress. But what such measures have in common is an effort to restrict the use
of CBDC, which to my mind at least, raises the question of whether the benefits of a CBDC would be

forfeited in the process.

Graph 9

Hypothetical Effect of Bank

Run Scenario: From Deposits to CBDC*
Drawdown on banks' liquidity coverage ratio (LCR) buffers**

$1,000 CBDC limit scenario
9 $5,000 CBDC limit scenario

Major bank Other Australian Foreign subsidiary

* Scenarios assume depositors with deposits at a single bank (which
constitutes around three-quarters of all deposits in the banking system)
move deposits into CBDC up to the hypothetical limit.

** LCR buffers refer to banks' liquidity above the regulatory minimum.
LCR buffers have been averaged over banks of each type.

Sources: APRA; RBA.

Monetary policy implementation and transmission. The stock of household deposits is large
relative to most central bank balance sheets and the markets they operate in. Significant uptake of
retail CBDC could therefore require a large program of open market operations and have the
potential to disrupt functioning in key financial markets. Separately, monetary policy transmission
could be affected by disintermediation of the banking system, given its key role in setting the interest
rates that influence saving and investment decisions. And while it has been suggested that a retail
CBDC could enhance policy transmission at the lower bound if it was remunerated at a negative
interest rate, this would necessitate the phasing out of physical cash - something most economies,
Australia included, have no plans to do. Indeed, most central banks consider a retail CBDC analogous
to a 'digital banknote' that would complement physical cash, not replace it, meaning it would not

bear an interest rate.

Wholesale CBDC Considerations in Australia

Let's now turn to a wholesale CBDC. The context in which we might consider the case for a wholesale
CBDC is fundamentally different to retail CBDC because central banks already have a long history of
issuing digital money to financial institutions in support of their monetary and financial stability

objectives. In this sense, a wholesale CBDC would be more evolutionary than revolutionary.

Like ES balances, a wholesale CBDC would be issued to eligible financial institutions and serve as the
ultimate safe asset in the settlement of wholesale market transactions. What is new is that it could
exist on different types of ledgers (centralised or decentralised) possibly alongside tokenised assets,
and offer greater functionality than today's ES balances. This could support asset settlement and

other wholesale payments in new ways.

The larger question here is how could the functioning of existing wholesale markets be enhanced,
and new ones supported, through innovation in digital money, securities and supporting
infrastructure? In some respects, innovation in wholesale markets has been less impressive than in
retail payments. To cite one domestic example, it is striking that price discovery and placement in the
$780 billion market for bank term deposits - comprising around 15 per cent of bank funding in
Australia - still largely occurs in branches and over emailed spreadsheets and phone calls in an
opaque, labour-intensive manner that is little changed from 25 years ago. This begs the question - is

this the best we can do?

More generally, the Bank for International Settlements and most advanced economy central banks

are actively exploring opportunities to uplift the functioning of their wholesale markets, including by:

» Reducing counterparty and operational risks, and improving capital efficiency, by
freeing up collateral: This might be achieved by shrinking the time between trade execution and
settlement through instantaneous (conditional) 'atomic settlement', where money and assets exist

on the same ledger (or on ledgers that are closely linked).

» Increasing informational transparency and auditability: Researchers are examining how
new forms of ledgers and assets could facilitate more transparency, including in greenfield markets

where the digital representations of assets could be updated and verifiable in real time.

» Increasing liquidity and the ability to transact: This could be supported by increased
informational efficiency and transparency, 24/7 trading hours, and the fractionalisation and

programmability of assets.

» Reducing intermediary and compliance costs: Programmability could cut through layers of

manual processes in the transaction lifecycle, including the automation of compliance checks and

asset-servicing tasks.

This exploratory research has seen central banks and industry probe the role that tokenisation might
play in a future financial system. Digital tokens can take two forms: they can be issued directly or
solely (as a standalone instrument) on new forms of ledger technology (native tokens'), or they can
digitally represent existing 'real-world' money and assets ('non native tokens'). Tokens could be
stored, traded and transferred on either centralised or decentralised programmable platforms. The
programmability of tokens via smart contracts, and the ability to free up collateral and reduce
counterparty risk by atomically exchanging money and assets on the same ledger, have been of

particular interest in experimental research.

When I first spoke about the opportunities and challenges associated with tokenisation in the
Australian financial system a year ago, I noted the potential benefits were sufficiently interesting to
warrant further investigation. As a case in point, if tokenisation produced just a small share of the
benefits of earlier periods of innovation in wholesale markets, then aggregate cost savings to
investors and issuers in the Australian financial markets could be substantial (Graph 10;

Graph 11). !*3! That said, for all its promise, I should also caution that tokenisation is not without its
challenges. Work is well underway at the RBA and elsewhere to examine whether the potential

benefits of tokenisation stand up to closer scrutiny.

$b

ND

=

Graph 10

Hypothetical Transaction Cost Savings
Annual, ranges from illustrative scenarios*

FX Equities Government Bank & Total
debt corporate
debt & ABS

If explicit transaction costs (including correspondent banking, collateral,
and clearing & settlement fees) and a proxy for implicit round-trip
transaction costs (the bid-ask spread multiplied by turnover) decline

by 6-30 per cent. This reflects declines in bid-ask spreads observed
following periods of technological innovation, scaled down by 50-90
per cent to be conservative. See Jones (2023): 'A Tokenised Future
for the Australian Financial System?' for more information.

Sources: ABS; AOFM; ASIC; ASX Information Services; Bloomberg; ice;
J.P. Morgan; Oliver Wyman; RBA calculations; World Bank.

wo

Graph 11
Hypothetical Cost of Capital Savings

Annual, ranges from illustrative scenarios*

$b $b
10 10
I 7 I
0 l LL ; Zz
Equities Government Bank & Total
debt corporate
debt & ABS

If the cost of capital falls by 5-24 basis points, calibrated from research
papers that estimate the impact of greater liquidity and transparency
on the cost of capital, and scaled down by 50-90 per cent to be
conservative. The ranges also incorporate uncertainty over whether
the cost of capital decline is applied to outstanding or new issuance.
See Jones (2023): 'A Tokenised Future for the Australian Financial
System?' for more information.

Sources: AOFM; ASIC; ASX Information Services; Bloomberg; ice; RBA
calculations.

For instance, in a world of atomic settlement, orders would likely need to be prefunded, which would
increase liquidity requirements for market participants as netting benefits would be lost. Liquidity
conditions could also worsen if trading volumes were fragmented between new platforms and
traditional infrastructure. New infrastructure is time intensive to establish, so tokenised markets
would likely need to be interoperable with traditional infrastructure for a considerable period. There is
still a way to go in resolving governance and legal issues involving smart contracts and tokenised
securities. A range of non-functional considerations will also need to be better understood, including
the impact on central bank balance sheets from wholesale CBDC issuance and the trade-offs between
transaction processing speed and ledger security. An even larger issue (one that could constitute a
separate speech) relates to the monetary and financial stability implications of widening access

arrangements to wholesale central bank money.

It may well be that a significant efficiency uplift in trading, clearing and settlement in our wholesale
markets can be achieved without the issuance of a wholesale CBDC. But given the Principles for
Financial Market Infrastructures emphasise the public policy benefits from conducting settlement in
central bank money, we expect it to continue to have an important anchoring role in any market that

is or could be systemically important.

A Roadmap

Table 1 sets out publicly, for the first time, key components of a three-year digital money work plan

for the RBA and Treasury.

Our most immediate priority is to launch the public phase of Project Acacia. Project Acacia aims to
build on the lessons from our CBDC pilot last year by focussing on opportunities to uplift the
efficiency, transparency and resilience of wholesale markets through tokenised money and new
settlement infrastructure. Subsequent phases of the project may well involve cross-border
applications with regional central banks. In October, the RBA, alongside our research partners at the
Digital Finance Cooperative Research Centre, will publish a consultation paper inviting industry

engagement.

A second step is to launch industry and academic CBDC advisory forums in the first half of 2025,
covering both retail and wholesale CBDC issues. We have benefited significantly from engagement
with industry and the academic community on various CBDC issues over recent years, and we now
seek to put more structure around this dialogue. These forums would play a similar role to those the
RBA has convened in recent years with economists from industry and academia, to hear different

views on monetary policy issues.

A third initiative, to begin next year, builds on a lesson from last year's CBDC pilot and will involve
supporting reforms to a regulatory sandbox for financial innovation, including digital money and
infrastructure. Industry feedback suggests the existing sandbox, which provides unlicensed
businesses scope to test new financial products and services for a limited time, could be enhanced.
Treasury will work with the Government to consider the recommendations of an independent review

into the sandbox, and, where appropriate, implement reforms.

A fourth initiative commencing later next year may involve a series of 'deliberative workshops' on
retail CBDC with the Australian community. Focus groups could include a broad cross-section of the

population as well as minority groups that can be under-represented in public policy consultations.

Recent international experience suggests that deliberative engagement of this sort can be a useful

complement to the standard (consultation paper) approach.

Finally, the RBA and Treasury are committed to reassessing the merits of a retail CBDC over time,

with a follow up paper to be published in 2027. By this time we will have had an opportunity to

reflect on feedback from community engagement and to conduct further research into the

implications of competing design options. There should also be a richer vein of international

experience to draw on.

Table 1
Initiative
Project Acacia: Wholesale
Digital Money and

Infrastructure

Industry and Academic CBDC
Advisory Forums

Enhanced Regulatory Sandbox
Public Engagement on Retail
CBDC

Retail CBDC Considerations
Paper

Description

Assess how new forms of wholesale digital money and
settlement methods could support tokenised markets
Launch advisory forums to gather more input from key

stakeholders

Work with Government in advancing recommendations
from the Enhanced Regulatory Sandbox review

Deliberative engagement with the public on retail CBDC
Assess the merits and design issues in retail CBDC,

informed by public engagement and the experiences of
other countries

Start

H2 2024

H1 2025

2025

H2 2025

2026

Legal and Decision-making Considerations for CBDC

in Australia

End

H2 2025

Open-
ended

NA.
Likely
2026

2027

As a practical matter, any form of CBDC would be issued by the RBA. However, the introduction of a

retail CBDC for use among the public would raise important political economy issues and give rise to

significant changes to Australia's financial arrangements. As such, the Australian Government would

ultimately decide whether to introduce a retail CBDC. Enabling legislation would very likely be

required, consistent with the international experience.

In the case of wholesale CBDC, the legal, regulatory and primary decision-making implications would

likely depend on the design and scope of its use. As a general guide, the more transformative the

proposed arrangements vis-a-vis our current system of ES balances, the more likely it is that

supporting legislative change (and active Government engagement) would be required.

Bottom line, it would be safe to assume that the RBA, Treasury and Australian Government would
closely consult ahead of any decision to issue a CBDC - retail or wholesale - should a public policy

case emerge.

A final point here is that the RBA and Treasury would view it as sub-optimal to compromise any CBDC
design features in an effort to give it legal status under current legislative or regulatory frameworks.
Instead, it would be preferable to identify the features of a CBDC that were most desirable from a

policy perspective, and then make any necessary enabling