RBA backflip a boon for crypto’s mainstream adoption
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Special Report: The Reserve Bank of Australia’s (RBA) about-face on the viability of a central bank digital currency speaks volumes for the huge potential of cryptocurrencies in Australia, and could represent a critical turning point for driving mainstream adoption.
The groundswell behind cryptocurrencies in Australia and growing regulatory appetite for their adoption by Australian financial institutions has been underscored by an important series of milestones in recent months.
Yet the journey towards a CBDC in Australia has been rocky at best. While this week saw bitcoin surge past $US23,806 ($A31,445) due to burgeoning institutional and corporate interest, there is still a long way to go towards helping unlock the regulatory barriers towards crypto’s mainstream adoption in Australia.
That is the view of Jonathon Miller, managing director for Kraken in Australia.
Speaking to Stockhead, Miller said Australia had reached a critical inflection point — particularly given moves by Australia’s international counterparts in adopting CBDCs, as well as the RBA’s new stance that sent strong signals to the market about the long term viability of a central bank digital currency in Australia.
“The most interesting aspect of the RBA’s undertaking of a wholesale central bank digital currency is that it represents a complete backflip on their previous view that CBDCs are of no benefit to Australian consumers” Miller said.
Last month, the RBA announced its partnership with two of Australia’s Big Four banks, fund manager Perpetual and a blockchain company to explore the potential of a central bank digital currency (CBDC) capable of use by wholesale market participants.
The announcement was made after the RBA cut interest rates to record lows on November 3 and came just months after the RBA previously stated “that there was no strong case for one within Australia”.
Miller said Australia needed to look no further than Sweden, often referred to as “the world’s most cashless society”, as a clear example of a favourable regulatory environment that would allow CBDCs to thrive.
“Sweden has taken a number of steps in recent years towards helping eliminate cash from its society and the economy has benefitted greatly from this,” Miller said.
“In February, we saw the pilot project with Accenture on the use of e-krona based on blockchain technology in an isolated test environment, and earlier this month it announced a review to examine the possibility of introducing a digital currency issued by its central bank.”
“What this points to is strong evidence of the movement to adopt CBDCs is certainly a global one and one that Australia can take direction from.”
In October this year, Sweden’s cash usage dropped to an all-time low, as the pandemic accelerated the shift away from bank notes and coins, with less than 10% of all payments made with cash in Sweden, according to data by The Riksbank.
Australia has for years considered the potential adoption of what was previously termed the “Digital Australian Dollar”. Yet the pushback has been widely documented.
In its submission to the to the Senate Select Committee on Financial Technology and Regulatory Technology back in January this year, the RBA expressed scepticism about both the likelihood of a global stablecoin like Libra and its usefulness given existing payment technologies in Australia.
The RBA’s change in position now could be seen as a turning point. With similar moves now being cast by Canada, China and England, Miller believes that the tides are clearly turning and ultimately Australian consumers will reap the benefits in a digital cashless economy.
“COVID-19 has sharpened the use case for mainstream adoption of CBDCs and accelerated the need for contactless banking and payments in Australia,” Miller told Stockhead.
“CBDCs will create real open banking with FinTechs and be able to create products that benefit Australian consumers without the heavy costs and barriers imposed on them by the banks,”
“We see vast potential for a wholesale central bank digital currency and in particular this technology could bring great benefits to our neighbouring jurisdictions in the Pacific who are highly reliant on AUD remittances”.
The RBA’s project, which features Commonwealth Bank, National Australia Bank, Perpetual and blockchain technology company ConsenSys Software, is expected to be completed in the next few weeks. But Miller affirms the devil will be in the detail and getting the implementation right is “absolutely critical”.
“I would strongly urge the RBA to consider the benefits of a less controlled and more open distribution of the CBDC to participants, such as fintechs, in the wider economy,” Miller concluded.
“If not, we risk choking innovation and limiting competition in the banking and payments sectors.”
This article was developed in collaboration with Kraken, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.