Transcript of Question & Answer Session Modernising Australia's Payments System

We’ve got plenty of questions coming in from our audience. I have got one that I want to get in quickly first. And that is how are you finding the job after two and a half months especially the level of scrutiny?

The level of scrutiny is, yes, challenging, I have to say. The other thing is I’ve been doing two jobs. I’ve been doing Deputy Governor and Governor. That’s been particularly challenging. But I have to say I work with a great bunch of people. They are so supportive, the Boards have been really, really supportive, the Reserve Bank Board, Payment System Board. So, I have had so much help, assistance, support. And the scrutiny - I just am sort of having to learn to live with. You would know all about it.

First one, in the context of financial inclusion what initiatives are being discussed to ensure broader access to payment services for all segments of the population?

Financial inclusion isn’t sort of one of our key mandates. We don’t have a mandate for that. Having said that, in a lot of the work we’re doing here in terms of migrating from legacy payment systems to digital payment systems, we do have in our minds inclusion. And this goes to the heart of the cash issue, and it also goes to the heart of the cheques issue. I suspect very few people in this room use a cheque. And I presented a cheque to my, daughter got a cheque for work the other day and she didn’t know what to do with it but there are people who do rely on it. So, I think while we are transitioning away from legacy systems, I think it’s really important that we keep in mind that we’ve got to bring people with us for purposes of financial inclusion. So, it is not a direct mandate, but I think it’s got a very important overlay on to the work we’re doing in the transition.

That sort of ties in with the next question with the push to replace BECS, will the Reserve Bank move to mandate NPP capability on all bank accounts?

Mandate is a big word. We don’t do a lot of mandating and we try not to do a lot of regulating. It really is a last resort for us. We are encouraging the industry - I know you’ve got a lot on. We’ve got a lot on too. But to the point about moving from BECS, there is going to have to be capabilities which currently aren’t there in the NPP as we retire BECS. So, I would like to think we won’t have to mandate but what we will be doing is publishing, talking about when we’re not happy with progress in the industry. We will be talking to your executives, we will be talking to the ABA, we will be talking to people and pushing very hard. In the end, if it requires a mandate, legislation, then we will do it - not legislation so much as regulation, but we would prefer, really, just to work with the industry to get it done.

Can you discuss the recent CBDC case study in terms improving the efficiency and user experience of the payment sector?

The recent project had a variety of use cases. One of my favourites, actually, was using CBDC to settle cattle auctions which, from my rural upbringing, I found quite intriguing. But I think what came out of that for us was that we are still not convinced on the retail CBDC side. A lot of the very useful things that came out of the CBDC trial we did - and it was quite unusual; it was a pilot, it was a real claim on the Reserve Bank, it wasn’t just play money, and one of the things that came out of it was really that some of these wholesale cases, and particular cases where Central Bank Digital Currency could be used to settle assets - and this is why we’re embarking upon this next step of looking at tokenised assets. If you tokenise assets, put them on the ledger, can you use CBDC to make that a much more efficient and safer settlement process. For me the thing that came out of that particular experiment of all the case studies was that that’s a sensible next direction in which to take this. I know other countries are looking at retail CBDC and will continue to keep in touch with that but that’s probably not our main focus for the next little while.

Do we need to start reflecting on the true cost of processing cash for businesses and, therefore, not represent it as a fee-free option for customers while always charging customers when they use their credit card when there is no other option, really?

Look, it is a good question. And the issue with cash has always been that businesses don’t really understand, I think, the costs of cash in their business. They are at the moment, I think, understanding it a bit more, but in the past they haven’t really. They have called shrinkage as their main cost which basically means theft but really, they haven’t really internalised, if you like, the costs of processing. I think the challenge with cash is that it really does have a big community, public service sort of aura attached to it. If you try to charge people to use cash, they are prepared to pay to get it out of an ATM but if businesses started charging people to use cash, I suspect there would be a very big backlash. Having said that, it is also true that as economists, you want people to face the prices of using particular services that reflect the cost of those services. So, at the moment I think we’re probably in a position where it’s very difficult to actually enforce payment for cash - what’s going to happen and what does happen at the moment is that the costs end up embedded in the costs of the financial institutions that are providing the services, and people don’t face them. I think it would be a very big challenge, though, to get people to face the costs of cash.

Does the Reserve Bank have any plans for a technical sand box for fintechs and banks?

This is another topical question. We don’t have a specific plan but one of the lessons that came out of the CBDC project that we did was that the regulatory issues were quite difficult. That’s the fault of no regulators. It is just the way the legislation is set up. What we’ve been observing overseas is that some countries have been putting in place sand boxes, which allow much freer innovation to happen without running into regulatory issues. So, this issue also popped out for us after our CBDC trial. We’ve been talking about this among the agencies. I am chair of the Council of Financial Regulators now as well. And this is an issue that it’s only just on our radar. Nothing is going to happen tomorrow. But I think it is a very valid question and it’s something that we will be talking to the government about, talking to Treasury about, and we will be watching what others are doing overseas in terms of their sand boxes.

On LCR, what would constitute success for the RBA and if the goal is not achieved could you provide details as to the regulations the RBA may put in place?

At the moment we’ve got about 54 per cent, I think, is enabled and actually active in LCR. I don’t think we can expect 100 per cent. But somewhere in the 80s might be nice, really. So, what are the regulations we might put in place? I don’t know what they might look like, I don’t know what a standard might look like in that case, but it would involve some sort of requirement on acquirers to actually offer LCR in some form. So, I don’t know what the specifics would be, but I think the industry - I think you can all do a lot better. You don’t need us to regulate. You can do a lot better here.

How will the RBA balance its regulatory role while promoting innovation? What steps will it take to back new payment technologies like CBDCs and open banking?

I guess what we want to do, and this is why we don’t like to regulate if we can avoid it, we would rather stand out and let the industry do it itself. I think actually the NPP was a good example of this. We said we were prepared to go in and do something about this if the industry couldn’t actually do anything itself, but the industry did. The industry ended up getting together and cooperating to create the NPP. I think that was a really good example of where innovation was encouraged by us, but we didn’t regulate, and we didn’t get in the way. We participated, we helped. But we didn’t get in the way of it. So, I think there is a model there which shows that we can be encouraging of innovation, we can help, we have a lot of expertise as well in the payments area ourselves. So, we can help with all of this. We don’t have to stand in the way. So, I think, we’ve got a good model here.

Guess what, a question on monetary policy has slipped through. Let’s go to it. US CPI is tipped to be 3 per cent tonight keeping US rates on hold at 5.5 per cent. How far behind the rest of the world is Australia falling in its fight against inflation?

I don’t think we are falling behind at all. We are trying to make sure we slow the economy enough to bring inflation down to our target band, provided inflation expectations don’t get out of control - and they are not at the moment - we think we can do that in the next couple of years and we can do that while preserving the employment gains that we’ve won through the pandemic and coming out of the pandemic. So, I don’t think we’re behind at all. I think we’ve taken a cautious approach and we will continue to watch the data.

I just wanted to ask you, as the nation’s chief economist, we’re coming up to Christmas. Any Christmas message you would like to give us and what we can look forward to in the economy next year?

Now, that’s a nasty question, Juanita. My only message to people is that: look, I know everyone has worked really hard this year, I know certainly in this room I can speak for all of my teams, and I’m quite sure for all the other teams here, it’s been a hard year. It’s been a hard year for people at work, it’s been a hard year for people who are dealing with rising interest rates and rising inflation. I would like to think we can all take some time to be with our families and hopefully things are going to get better next year.