Australian Central Bank Launches Project Acacia To Explore Wholesale CBDC Benefits

The Reserve Bank of Australia (RBA) is exploring the potential benefits of a wholesale central bank digital currency (CBDC). This shift in focus comes after the RBA determined that a retail CBDC would offer limited advantages to the Australian public.

The RBA believes that a wholesale CBDC can significantly improve the efficiency, transparency, and resilience of wholesale markets.

By focusing on wholesale CBDCs, the RBA aims to reduce counterparty and operational risks, enhance transparency and auditability, and lower costs associated with intermediaries and compliance.

The central bank added that CBDCs can potentially improve domestic and cross-border payments.

It argued that the current correspondent banking system for cross-border payments is complex and inefficient. CBDCs could streamline this process by reducing reliance on intermediaries and simplifying settlement.

The RBA participated in Project Dunbar, which explored a multi-CBDC platform using DLT for cross-border payments.

While the project demonstrated the feasibility and benefits of such a platform, it also highlighted challenges in managing a shared platform across multiple jurisdictions.

Other projects, like mBridge and Project Agorá, are also exploring multi-CBDC solutions . However, the BIS assesses that these solutions are unlikely to arrive in the near term.

In the meantime, efforts to improve existing cross-border payment processes and infrastructures, such as harmonizing standards and interlinking fast payment systems, are more likely to yield near-term progress. The RBA has been involved in several of these initiatives, including Project Mandala.

The RBA has abandoned plans for a retail CBDC in favor of a wholesale CBDC. The RBA’s research suggests that a wholesale CBDC could offer significant benefits, including reduced risks, improved transparency, and lower costs for financial institutions and their customers.

Governor Jones said: “First, and with the strong endorsement of the Payments System Board, I can confirm that the RBA is making a strategic commitment to prioritise its work agenda on wholesale digital money and infrastructure – including wholesale CBDC – rather than retail CBDC. At the present time, we assess the benefits to the economy as more promising, and the challenges less problematic, for a wholesale CBDC compared to a retail version.”

Governor Jones added that, unlike a retail CBDC that would be issued for use among the public, a wholesale CBDC would represent more an evolution than a revolution in the Australian monetary arrangements.

“It also recognises the stabilising role of central bank money in the settlement of wholesale market transactions, particularly in markets that are (or could be) systemically important – a point emphasized in international standards.”