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RBA Governor ponders over issuing Australian dollars on blockchain

The Reserve Bank of Australia (RBA) has no immediate plans to issue an electronic form of the Australian dollar (AUD), RBA Governor Philip Lowe said recently.

Speaking at the 2017 Australian Payment Summit, Lowe said that the RBA is currently looking at the pros and cons of the digital dollar and also exploring how settlement arrangements with central bank money might evolve as new technologies emerge.

He said that electronic banknotes could coexist with the electronic account-to-account-based payments system operated by the banks. Lowe also noted the potential of distributed ledger technology (DLT) to achieve this on a wide scale.

“The technologies for doing this on an economy-wide scale are still developing. It is possible that it could be achieved through a distributed ledger, although there are other possibilities as well. The issuing authority could issue electronic currency in the form of files or ‘tokens’. These tokens could be stored in digital wallets, provided by financial institutions and others. These tokens could then be used for payments in a similar way that physical banknotes are used today,” Lowe explained.

He added a DLT-based system could enable the payment and settlement process to become highly integrated with other business processes. This, in turn, could help generate efficiencies and reduce risks for private business.

However, Lowe underscored the need to understand the various aspects of a DLT-based system and is liaising with fintechs and financial institutions on the subject. He said:

“We need to better understand the potential efficiencies for private business and why it would be preferable for such a settlement system to be provided by the central bank, rather than the private sector; why privately issued tokens or files could not do the job. We would also need to understand why any efficiency improvement could not be obtained by using the existing Exchange Settlement Accounts and the NPP.”

In his concluding remarks, he said:

“A convincing case for issuing Australian dollars on the blockchain for use with limited private systems has not yet been made. It is certainly possible that this type of system could lead to more efficient, lower-cost business processes and payments. My working hypothesis here is that such a case could develop, although we need to work through a range of complex operational and policy questions.”

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