The RBA has a new digital currency - what does that mean?

Two men walking past RBA sign

This week the Reserve Bank of Australia said it will trial its own Central Bank Digital Currency (CBDC) as a part of a one-year collaborative research project with the Digital Finance Cooperative Research Centre (DFCRC) to evaluate the potential value to Aussie consumers and companies.

“This project is an important next step in our research on CBDC,” RBA Deputy Governor Michele Bullock said in a statement. “We are looking forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia.”

But what could this mean for everyday Australians? Here’s what you need to know about the RBA’s new digital currency.

What is a Central Bank Digital Currency?

A Central Bank Digital Currency is a digital form of money similar to cryptocurrency. Unlike cryptos, which are specifically decentralised, a CBDC is issued and controlled by a central authority - just like the other forms of money issued by the RBA.

What are the current forms of currency the RBA issues?

The Reserve Bank of Australia currently issues two forms of money:

  1. Physical cash - The banknotes and coins that people and businesses use daily.
  2. Digital money -  Bank balances that are held in accounts that financial institutions can hold at the Reserve Bank to settle payment obligations between each other.

The Central Bank Digital Currency will then be a third form of currency issued by the RBA.

How does the RBA’s CBDC trial work?

The trial will be a roughly one-year-long limited-scale creation of a CBDC that will be a real claim on the RBA.

Select industry participants will be invited to develop specific use cases that demonstrate how a CBDC could be used, to provide innovative and value-added payment and settlement services to Australian households and businesses. In other words, the RBA is researching how a CBDC could streamline monetary transactions, providing businesses, financial institutions and everyday Australians with more speed, accessibility and convenience, as well as trust and safeguarding

How could a CBDC used?

According to the RBA’s statement, a CBDC could be designed for retail or general use, which would be like a digital version of banknotes that is essentially universally accessible. It could also be for wholesale use, where it is accessible only to a more limited range of wholesale market participants for use in wholesale payments and settlements.

Do other countries’ central banks have digital currencies?

Currently, approximately 100 countries are looking into creating CBDCs, according to the International Monetary Fund (IMF). Some central banks, notably China and the Bahamas, are already distributing their digital currencies.

If you are interested in learning more about current fintech trends, including more information about cryptocurrency, check out Mozo’s fintech hub. Or check out our RBA hub for more information on what the Reserve Bank is doing this month.