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No need for central bank digital currency in Australia says Reserve Bank

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While other countries may be placing central bank digital currencies — also known as CBDCs — at the top of their agenda, Australia could buck the trend.

According to a local news report on Sept. 17, the Reserve Bank of Australia’s latest payments paper has taken a cautious and sceptical line toward CBDCs as well as private-sector stablecoins.

The RBA does not believe there is currently a strong policy case for issuing a CBDC in Australia, pointing to the success of the country’s efficient, real-time New Payments Platform.

Moreover, while the use of cash for transactions is broadly declining, Australians are not relinquishing banknotes as quickly as other citizens, as for example, are the Swedes.

Amid the COVID-19 pandemic, demand for cash actually saw a significant uptick, the paper stated. RBA has therefore pledged to continue to provide access to banknotes “for as long as Australians wish to keep using them.”

The central bank’s paper analyzed the initiatives underway in Sweden, Canada and China — three of the most proactive countries in CBDC development.

In Sweden’s case, the RBA noted that the decline in cash use there has already been precipitous for several years, spurring the Riksbank to develop — and test —  a potential e-krona.

The Bank of Canada, meanwhile, has been readying itself for the potential issuance of a retail CBDC as and when it becomes desirable. Canada envisages two scenarios in which CBDC issuance could become advantageous — a collapse in cash use for everyday transactions, or threats to monetary policy from the circulation of a private-sector digital currency.

For its part, the RBA stressed the uncertain horizon for prospective currencies such as Facebook’s Libra, noting that it remains to be seen whether the currency will “gain regulatory approval and become operational.”

As for China, the RBA has speculated that the impetus behind the country’s already-advanced CBDC is tied to the domestic prevalence of private-sector e-money wallet providers, such as Alipay and WeChat Pay.

In the RBA’s view, a CBDC could have significant downsides for the country, including higher funding costs for commercial banks. 

Currently, banks source roughly 60% of their funding from deposits, two-thirds of which comes from at-call deposits. Loss of deposit funding could push commercial banks to rely on funding from equity and capital markets to a greater extent. The paper noted:

“The loss of deposit funding and greater reliance on other funding sources could result in some increase in banks’ cost of funds and result in a reduction in the size of their balance sheets and in the amount of financial intermediation.” 

Moreover, a CBDC could increase the likelihood of a run on the banking system in case of financial stress. RBA claimed that “in the presence of a CBDC, a run on the banking system as a whole would become feasible; if depositors had concerns about the entire financial system, they could seek to make large-scale transfers of commercial bank deposits into CBDC.” 

This threat would be mitigated, however, by the existing protection offered by Australia’s financial claims scheme for household deposits, the RBA admitted.



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New York authorizes first Yen stablecoin operator in the US

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New York has given the first authorization to a stablecoin backed by the Japanese Yen to operate in the U.S.

Per a Dec. 29 announcement, the New York Department of Financial Services has granted Japanese firm GMO-Z.com a charter to handle U.S.D. and Yen-backed stablecoins in New York. 

Given New York’s status as a global center, the NYDFS is the most prominent state financial regulator in the U.S. It is also one of the most aggressive. A pass to operate in New York often opens up the rest of the country. 

GMO’s charter is as a limited liability trust company rather than a full bank, the principle difference being in authorization to handle deposits. While a stablecoin operator typically needs the ability to hold reserves of the pegged asset, GMO’s charter limits its rights to hold other kinds of deposits not central to its ability “to issue, administer, and redeem” its stablecoins. 

The right to issue such non-depository charters has been a bone of contention between state regulators like the NYDFS and national banking regulators in the U.S. 

GMO president and CEO Ken Nakamura said: “We’re breaking ground with our move to issue the first regulated JPY-pegged stablecoin, which many see as a safe haven asset.” 

The NYDFS recently made changes to its famous BitLicense, including a conditional format that buddies up newly licensed firms with existing licensees. The first conditional BitLicense went to PayPal, facilitating the launch of its new crypto services earlier this fall with the help of longstanding licensee Paxos.