Central Bank Digital Currency

The Reserve Bank is actively researching central bank digital currency (CBDC) as a complement to existing forms of money. Consumers currently have access to two forms of Australian money[1]:

  1. Cash. This physical form of money is issued by the government – the RBA issues banknotes and the Royal Australian Mint issues coins. It can be used for in-person transactions but not digital ones. Payments in cash occur without the involvement of financial institutions, such as commercial banks.
  2. Bank account balances. This is a digital form of money that is issued by commercial banks, meaning that it carries some additional (though still low) credit risk compared with money issued by the RBA. Payments can be made in person and online.

In theory, CBDC would be a new digital form of money issued by the Reserve Bank.

It could be designed for retail (or general purpose) use, which would be like a digital version of banknotes. Or it could be designed for wholesale use, where it is accessible only to a more limited range of wholesale market participants for use in wholesale payment and settlement systems.

Differences between a retail and wholesale CBDC
This infographic compares the features of a retail CBDC to a wholesale CBDC. It shows that all households and businesses can hold a retail CBDC, whereas a wholesale CBDC would be used by select wholesale market participants (like financial institutions). While a retail CBDC could be used for in-person and online transactions and transfers to friends and family, a wholesale CBDC would be usef for wholesale payment and settlement. The payment methods that we have now that are similar to a retail CBDC are physical cash and debit cards. By contrast, a wholesale CBDC would have similar features to Exchange Settlement accounts.

To date, the RBA has not found a strong case study to support a CBDC for retail use. Any decision on a CBDC would be made by the Australian Government. Further information can be found in the report.

Endnotes

To learn more about the different forms of money that exist, see our Explainer: What is Money? [1]