Australia Announces Private Partnerships For CBDC Pilot
The Reserve Bank of Australia (RBA) is getting closer to launching its central bank-issued digital currency (CBDC), the Australian digital dollar or AUD. On Thursday, the bank announced it is collaborating with the Digital Finance Cooperative Research Centre (DFCRC) and some private entities to conduct a research project to study 14 specific use cases for eAUD and the economic benefits of introducing a CBDC to the Australian economy.
CBDCs are digital tokens pegged to the value of fiat currencies like the U.S. dollar or euro. However, unlike stablecoins, which are fiat-denominated cryptocurrencies issued on a public blockchain like Ethereum by private firms, the issuance and supply of CBDCs are managed by a country’s central bank on a private blockchain. CBDCs are collateralized by cash and bonds held in government treasuries.
Last November, after announcing it was working on developing the eAUD, the RBA received a large number of use case proposals from established firms across industries. The central bank selected participants for the CBDC pilot project after carefully considering usage criteria ranging from offline payments to bond settlements and livestock auctions.
Some companies working with the central bank on the eAUD research are; Mastercard, Australia and New Zealand Banking Group (ANZ), Commonwealth Bank, Australian Bond Exchange, and Canvas Digital – an Ethereum-based scaling network.
Global payments giant Mastercard is working on making eAUD interoperable with other public blockchains for Web 3.0 commerce. Cryptocurrencies are natively compatible with the blockchain where they were issued. To make them interoperable with other networks, developers create a ‘wrapped’ version of the token valued 1:1 with the original asset.
Mastercard will take a similar route by issuing a wrapped eAUD backed by the CBDC to help users conduct risk-free transaction settlements across blockchains. The payments service provider will also develop control systems to ensure whether the asset is held, used, and redeemed by consumers that have been thoroughly risk-assessed by licensed eAUD service providers.
Australia and New Zealand Banking Group (ANZ) are developing a system to allow consumers to make eAUD payments even in places lacking internet connectivity. The banking giant has partnered with the Southern Cross University (SCU) and Royal Melbourne Insitute of Technology (RMIT) to pilot an offline CBDC payment system on their campus. The project involves students using a smartphone app to deposit their eAUD balances into an NFT-enabled smart card to make offline day-to-day payments at supported merchants and other businesses.
Blockchain firm Canvas Digital is building a tokenized foreign exchange (FX) settlement system on the CBDC ecosystem. Since traditional FX trading and remittance networks are not available 24 hours a year round, it restricts the users’ ability to make instant foreign currency trade and transfers.
Canvas will allow eAUD to be exchanged as eAUD for foreign currency-denominated stablecoins like USD Coin (USDC) on Canvas Connect – a Layer 2 scaling network that enables fast, secure, and low-cost transactions on the Ethereum blockchain. Canvas Connect will use zero-knowledge rollups to facilitate faster FX trade settlements by conducting the transactions on a separate network before combining and sending them to the underlying blockchain, which in this case is Ethereum.
Australian fintech Imperium Markets will develop a platform to facilitate tokenized trading of HQLA securities in a faster, cheaper, and low-risk manner on the eAUD network. The company seeks to implement a blockchain-based ledger system to tokenize liquid assets and exchange them using CBDC. The ledger will issue certificates of deposit, term deposits, bonds, and floating rate notes that can be traded between financial service providers who are authorized deposit-taking institutions (ADI).
The Australian Bond Exchange (ABE) will pilot corporate bond settlements using eAUD. ABE believes digital currency transactions enable atomic payments and reduce settlement times and counter-party risks in the corporate bond market. The proposed system will allow investors to purchase bonds from the exchange with eAUD. ABE will also make coupon payments to investors in the CBDC, and when investors sell the bonds, the system will redeem their funds in eAUD.
Blockchain-based financial solutions provider Fame Capital aims for livestock farmers with its eAUD pilot program. The company is building an online livestock auction platform with programmable eAUD payment settlement that will enable direct peer-to-peer transactions between a livestock buyer and seller with no counter-party risk. The site will also facilitate automatic fees and levy payments to livestock associations.
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Assistant Governor of the RBA Brad Jones said his team was delighted with the interest shown by the private sector to be a part of the eAUD research program. The central bank pilot serves two main objectives; firstly, it will help the private sector better understand the blockchain industry, and secondly, Australian lawmakers will know how a CBDC could benefit the country’s economy and financial system.
The pilot program, which began in August 2022, is scheduled to be completed before the third quarter of 2023. According to the American think-tank The Atlantic Council, Australia is one of the 89 countries currently testing, researching, or developing a central bank digital currency.
Earlier last week, the Bank of Japan (BoJ) announced it was preparing to launch a pilot program for the digital yen in April. China is the global leader when it comes to CBDC implementation. The digital yuan (eCNY) has over 130 million registered users in the country and has facilitated transactions worth more than $15 billion since its launch in November 2020.
