Australian central bank mulls electronic banknotes
RBA studies blockchain technology but dismisses bitcoin fever as ‘speculative mania’
Australia’s central bank is exploring creating electronic banknotes using the technology underpinning bitcoin, as major central banks around the world race to bring cash into the digital age.
Philip Lowe, governor of the Reserve Bank of Australia, said the bank was analysing the benefits and drawbacks of issuing an electronic form of the Australian dollar — the “eAUD” — alongside traditional banknotes.
Speaking at the Australian Payment Summit on Wednesday, Mr Lowe said: “It is possible that the RBA might, in time, issue a new form of digital money. . .perhaps using distributed ledger technology.”
He added that although the RBA has “no immediate plans” to issue digital dollars, the central bank is continuing to look at the pros and cons.
The central bank also is exploring a new digital dollar settlement system based on the use of distributed ledger technology, or blockchain, the technology behind bitcoin.
Digital dollars could take the form of a “token” that is issued and stored in consumers’ digital wallets, which can then be used for payments in a similar way to physical bank notes.
he development comes as the value of bitcoin has soared over the past several weeks, reaching a record high of $17,428.42 on Tuesday after starting the year at $1,000. The surge has fuelled concerns the cryptocurrency is forming a bubble.
Central banks, commercial banks and other financial institutions are exploring how to use private distributed ledgers to make financial transactions cheaper, more transparent, and less vulnerable to fraud.
Banks and settlement systems currently use central electronic ledgers to track money transfers. But these systems often rely on manual input and are open to hacking. Distributed ledger records transactions through a network of computers rather than a single central party.
Other central banks including the Bank of England already are in the process of trialling blockchain-like systems.
The attractions of the technology include the ability to make fast digital money transfers that do not carry the cost of handling cash, tracked securely by the network. However, Mr Lowe said a potential drawback is the lack of a central entity standing behind the liability.
“I don’t think anyone is proposing a switchover from physical to digital; there is going to be a long transition period. . . Over time we will see the gradual digitalisation of the currently cash-enabled economy,” said James Lloyd, Asia-Pacific fintech leader at EY. “I do think there’s an inevitability to it,” he added, noting that developing the technology is a comparatively simple compared to the challenges of regulations, laws and encouraging adoption.
The initiatives come as use of cash is on the decline in Australia, echoing trends elsewhere around the world, such as in the Nordics. The RBA cited its 2016 survey, showing cash accounted for 37 per cent of household transactions, down from 70 per cent in 2007.
Bitcoin has taken off across Asia, fuelling the recent frenzy for the cryptocurrency as investors in Japan buy in with leverage up to 15 times their cash deposit.
Mr Lowe said the current fascination with cryptocurrencies “feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment”. He added that bitcoin “seems more likely to be attractive to those who want to make transactions in the black or illegal economy”.