Speech Fireside Chat at the Intersekt 2025 Conference
Transcript
Moderator
Well, welcome everyone. I know that Ive been looking forward to this session for - since I found out about it and it is a particularly topical discussion, not because of the whirlwind of stablecoins and CBDCs around the world but because were at a genuine inflection point in history, where a deeper discussion around the future of money, to my mind, is incredibly important. So were thinking about that in the fundamental build of that future from the get-go. Im delighted to be joined today by Bradley Jones from the Reserve Bank of Australia and Daniel Lavecky who is experimenting, building at the coalface of this future of money. And Im going to kick off in this absolutely jam-packed 30 minutes with a question first to you, Brad, which is, how is the Reserve Bank thinking about the future of money?
Brad Jones
Theres probably two points I would make. The highest level point is, in fact, as I announced at this exact forum a year ago, we with the direction of the Payment System Board have made a strategic commitment to prioritise our research into wholesale digital money and infrastructure. Its not that were not doing any work on the retail side, we are, but in terms of prioritising our resources, thats really - the wholesale space is really where we see the biggest potential benefits and the fewest challenges. And it also reflects the fact that when we look internationally at the countries that are pushing ahead with a retail CBDC, the sorts of rationales that are driving that decision, we just dont - dont really have much resonance here in Australia. For instance, we think we have a world class retail payment system and so thats, sort of, whats sitting behind that strategic priority around wholesale.
The second point Id make is actually something that Kate mentioned at the end there, that resonates with us, and that is as were pursuing research into opportunities to uplift the functioning of our wholesale markets, we are genuine open-minded about the precise functional forms that can help us to get there. That is, whether its forms of money or enhancements to infrastructure. Thats why weve stood up Project Acacia to better understand what mix of public and private innovation might be needed to get there.
There are, however, probably two guiding principles for us in pursuing this work program. The first is efficiency, competition and resilience. Those principles are really our north star. And so wherever the technology lands, its got to be consistent with those principles. And the second piece is wherever our future of monetary arrangements land has to be consistent with monetary and financial stability. So theyre our - they, sort of, help us give us some structure as were working our way through this space.
Moderator
Thanks, Brad. And before we move to Project Acacia, I was going to ask you, because I did read all the materials you sent me, there was a comment you made at Intersekt last year which was, it was reasonable to expect Central Bank money will continue to serve as the ultimate safe settlement asset, particularly in systemically important markets. Does that remain true in your view?
Brad Jones
Yes.
Moderator
Fantastic. Now, lets turn to Project Acacia. Now, I think the excellent last session, a lot of discussion at this Conference around the use cases that are involved, and Ill ask Daniel about Canvass participation in that. Before we do that, Brad, from your perspective, just talk us through, where are we at? What are you seeing? What excites you about what youre seeing? And talk us through the RBAs role and position, perspectives on that?
Brad Jones
Project Acacia?
Moderator
Yes, please.
Brad Jones
So just a very quick history lesson. Two years ago we concluded our first pilot and that pilot was unique in a couple of respects. Number one, we did not prescribe use cases. We literally gave industry a blank canvas and said, if we were ever to issue a CBDC, what would you, industry, do with it? And what we learnt from that pilot was a strong disposition to want to explore opportunities around tokenisation. So that was one of the key learnings. And since then weve done a deep dive into that area and I think our viewers, sort of, hardened that theres some real opportunities in that space, if we can get it right. Its not without challenges but we think theres enough there worth continuing to kick the tyres on. So thats really why Project - so the end point of the last pilot was really the starting point for this pilot, for Project Acacia. Thats why were focused on exploring different forms of digital money and enhancements to infrastructure to support the development of tokenised asset markets in Australia.
In July, we were pleased to announce, with our colleagues at the Digital Finance CRC, and our fellow regulators ASIC and APRA, Treasury, terrific to see them represented here as well, a short list of industry participants, and its also great to see many of those folks here in the audience as well. Were now moving from the desktop research phase into the live transaction phase, and that will see us through the balance of this year. Once weve had a chance to reflect on the learnings from the live transactions, and I want to emphasise there are two streams here, but the larger stream is actually using a real claim on the Reserve Bank, which is not something that many Central Banks have done when theyve explored CBDC. Well reflect on those learnings at the end of the year and communicate back to the public probably late in the first quarter. What weve learnt and where were going to go. So thats what the runway looks like.
Moderator
And sneak peek, Brad, is there anything at the moment that is raising an eyebrow, is piquing your interest as part of that process?
Brad Jones
The use cases that industry want to explore, I would say accorded with our prize about where the potentially most interesting opportunities would reside. And Id sort of categorise those broadly in two respects. One is ways to uplift the functioning of our fixed income markets. So were seeing use cases in areas like tokenised term deposits, money market funds, government bonds, but also separately theres interest in tokenising markets where theres really very little, if any liquidity, at all. Tokenised private credit funds, Daniel will speak to in a moment, also carbon credits, trade receivables. So theres, sort of - theres two different streams here. We ended the project thinking that there were opportunities in both, and what were seeing and hearing from industry probably affirms that thats roughly about right.
Moderator
Well, what a beautiful segue into you, Daniel. Talk us through your participation in Project Acacia.
Panelist
Hi everyone, Im Daniel Lavecky. Im the Chairman of Canvas. We operate in three areas, which is in assets, in the platforms or the markets that Brad just mentioned, and also the infrastructure using Canvas Connect, which is our layer to blockchain, its privacy-based. And as part of Project Acacia we wanted to try and use those technologies when we saw the $19 billion productivity improvements. We wanted to apply those technologies into the infrastructure space and into the markets area.
In the previous pilot we were quite proud to have made Australian history to do the first Australian foreign exchange transaction in a tokenised form and that proved the success, in our minds, about the benefits of the foreign exchange markets. And what were looking to do in Project Acacia is in the debt markets, in the yield markets, in the exchanges. So the first project that were doing is a tokenised private credit fund. Were partnering with Sanlam, which is a global funds manager. They have about $140 billion under management. And were making a private credit fund with them that will be investing funds into an Australian credit provider that provides real estate developer funding. Alceon is a $5 billion fund manager, very well respected. And so the former payment and the transfer between the two participants is using a CBDC. Whats very exciting there is because its removing a lot of the inefficiencies that go in with the primary purchase and then also the payment of the interest components.
And then the second element to this is, as Brad mentioned, the market. Normally investors, theres not very much liquidity in private credit markets. Its something thats growing rapidly and ASIC is taking a very good look at it, about how to regulate this area. So by having a market where participants are able to sell 10% of their holding, rather than having to redeem with the fund manager, creates liquidity for both the investors and then theres going to be market makers that will have the ability to buy and sell 24 hours a day, seven days a week. So thats really revolutionary in the funds management space. Obviously theres audibility and theres ease of reconciliation.
In the second project that were working on is the tokenisation of government bonds, of Australian government bonds. And obviously thats not possible today, so were actually purchasing the Australian government bonds. Were digitising it with a digital wrapper, and then being able to fractionalise it. Again, the payment will be in the use of the CBDC which is a Central Bank risk-free payment mechanism. So an alternative to Austraclear that will allow innovation in new areas that are only just possible now with programmability and the like.
What were really excited about with this, its all operating on our privacy-based blockchain. So what means is that all of the participants can see the transactions but no-one else can. So we as a technology company feel that there is an issue that most regulators and financial institutions will have significant problems with having all of their transactions, all of their wallets completely visible to third parties. So our blockchain solves that problem and the RBA will have a wallet on our - theyll be minting the eAUD onto - on our blockchain for the participants, the fund managers and the markets to use as the form of risk-free payment.
Moderator
So, Daniel, completely unscripted, you mentioned two interesting things there about privacy. Firstly, its privacy-enhancing blockchain with certain access and credentialling. But, secondly also, youre shedding some light, some further insight into an industry, particularly in private credit, that is known to be quite opaque. So what insight is it possible to gain with this moving on to a blockchain?
Panelist
Well, certainly when theres opaqueness the spreads increase. The profit goes to people that shouldnt have it, and we believe that in lowering costs, making things more efficient, more open in this area, that means our superannuation investments will improve. Costs will decrease and returns for investments, like superannuation, will increase dramatically. So we think that utilising this technology will assist, as well as the regulatory controls that are being implemented across the board in the government, will remove some of those limitations that were seeing today in current structures.
Moderator
And so do I understand correctly that I might see, sort of, transactional activity, and I guess Id get price transparency from whatever market its trading on, is that right? And that boosts visibility?
Panelist
Thats exactly right. So as part of Project Acacia, we do have regulatory overview on to our blockchain. So they have full transparency. And we envisage a world where AUSTRAC, in the same way monitors all payments within financial institutions will be monitoring our blockchain and other blockchains because there will be interoperability between chains. To view velocity, potential fraud, transactions that are alerted. And then well see, within that, like with the ASX, a history of transactions but anonymised so that the participants dont need to be known, but certainly where the market is for a particular product.
Moderator
Fantastic. Thanks. Now, Daniel, one of the areas that weve been discussing in sort of years gone by, you know participating in these pilots, amazing levels of support from regulators, relief from regulation, but then theres that awkward transitional window from a pilot into the real world without necessarily any sort of scaling of regulation. Its in and you need to comply. What enabling environment do you need to make this happen, and whats the delta between that and what we have?
Panelist
Well, I think theres three areas, and Id like to defer policy to Brad, but I think in a regulatory sense, and my good friend Kate who Ive known for many years while she was at the NAB running in blockchain management, I think that were starting to see some really good movement by the government and wed like to see the completion of that work. So just recently we saw the Payment Systems Modernisation Act get passed, which means that now the Australian Government has regulatory controls over new methods of payment, like digital currencies, and that will be useful in new legislation. And then ASIC is currently running a consultation paper with the community and with all of participants like ourselves, with a view of updating regulation 225. What that means for all of us is that, like Kate mentioned, regulatory clarity and that regulatory fog will disappear, and then the large financial institutions will start to participate.
But on a commercial level, as with most things, I think in this instance it will be government creating the environment that is rich and is exciting for financial institutions, technologists and operators to operate just like the Stablecoin Act in the US, the Genius Act, has implemented a whole wave of innovation. So commercially wed love to see the RBA work towards issuing a whole CBDC.
Moderator
So, Daniel, sounds like youre very optimistic but an important role for government. Brad, whats your view on this?
Brad Jones
Just maybe two responses. One is on Project Acacia we made a deliberative decision to ensure that we had very senior level representation from right across the regulatory communities. So APRA, ASIC and Treasury have been represented on the SteerCo for Acacia from day one. And the idea there was A, to help the project itself run smoothly. That was where the regulatory relief, for instance, came in, for which were very grateful from our colleagues at ASIC. But also just to create a bit more connective tissue and awareness on all sides about the issues here. So thats the first thing.
The second thing is Australia has a regulatory sandbox. Its called the enhanced regulatory sandbox. I dont think theres anyone that thinks that thats perfect and there is an opportunity for the government, and the governments well aware of this, and we are very supportive of an upcoming review into that sandbox. And part of that review, almost certainly, is going to look at what we can learn from the international experience to reconfigure the regulatory sandbox in Australia in a way that is, A, more fit-for-purpose and encourages more types of innovation. And, B, smooths the runway from experimentation to go live. At the moment theres still quite a gap between those two settings and so theres a real opportunity there and the RBA is standing ready to support future work into that review.
Moderator
Im sure thatll be welcomed. You know, my own experience has been that weve seen this, you know, much more positive regulatory environment in the last couple of years, significant levels of encouragement and its wonderful to see. Now, it wouldnt be the future of money without - so talking about the broader issues that are affecting money. And, Brad, you gave a speech last Friday, and there was some very, very important and rather colourful remarks during that session. And for those who havent seen the transcript, Ill recap some of these, which really point to some really deep systemic contextual questions for us.
So you talked about the era of the peace dividend being over. A cyber arms race. Concentration risks in cloud computing. Quantum computing posing risks in the future. Contagion and herding risks of AI. Disruptions in critical infrastructure that can affect the financial system, including the electrical grid and telecommunications networks, and even space-based technologies, including satellites requiring important redundancies. So against that backdrop, as well as, as I learned your history with the IMF with Deutsche Bank in multiple other markets, what is the role of the Australian dollar? What do we need to be doing to secure the resilience of our financial system?
Brad Jones
If I can confine my response to the payments system. The way that - so theres two points Id make there. One is the era that we suspect were moving into is one that will be characterised by much more friction and fragmentation at a strategic level, and that is also going to be right for a lot of disruption. So confronted with more strategic and technological disruption, the risk is that regulators default back to just wanting to lock everything down. The way that weve been thinking about this, and the Payment System Board has had a number of deep dives into this issue recently, is where are the opportunities to actually position our payment system and our financial system more generally, so that it can not only weather more severe storms but could actually benefit from the disruption thats potentially coming our way. And so that was the context for the speech you mentioned.
I spoke about this concept of anti-fragility. Anti-fragility is not just about - not letting bad stuff happen but actually positioning your system through innovation, more competition, more dynamism, to actually benefit from disruption. And so thats where we think the opportunity is. We dont think that there needs to be a trade-off between resilience, on the one hand, and innovation and dynamism on the other. The opportunity for all of us is to find ways to make our system more resilient by better utilising and harnessing the power of innovation and dynamism.
Moderator
Thanks, Brad. And in relation to the Australian dollar, you know, we see a significant motivator for stablecoin regulation and activity in the US being the ongoing relevance of the US dollar to the international market. What about the Australian dollar? Let me clarify that question. So the Australian dollar, obviously very important in international financial markets. Plays a significant role, some say an outsized role globally. Is that a priority for the Australian Government?
Brad Jones
Well, the Australian dollar punching above its weight-by-weight, if you characterise that as, say, just GDP, thats actually been the case for a number of years. Theres a number of very good reasons for that. I think fundamentally it comes down to the strength of our institutional settings. For as long as we have strong, good public policy-making in Australia, we should have every confidence that the Australian dollar will continue to punch above its weight on the international stage.
Moderator
Okay. And it wouldnt be the future of money without talking about the physical form of our money. Weve seen some really interesting movements in Australia. Potential contraction of the use of cash through the imposition of limits, then to a potential mandatory acceptance of cash, through to AUSTRAC limiting cash in certain instances. What is the role of cash in the future of money in Australia?
Brad Jones
So the banks position has been, I would say, unwavering over a period of time. And that is that we fully support the Government in its decision to ensure that there is a place - for as long as Australians want it, that theres a place for cash in Australian society. So theres a lot of work going on now to help ensure that the infrastructure that sits around the distribution of cash in the country is put on to a stronger footing. Thats really welcome. Theres a lot of energy being directed to that end but the position of the Reserve Bank has been, I think, steadfast in that we are fully supportive of the government in ensuring that theres an ongoing role for cash in Australia for as long as Australians value it.
Moderator
Thanks, Brad. Daniel, tell me in the last couple of minutes that we have left, what does the deep future of money look like?
Panelist
Well, we see digital money as a compliment to physical cash. Cash will be with us for a very long time. It wont be switched off overnight. But there will be new use cases where we need new forms of digital cash in order to be able to pay in new ways. So when I look at the future of money, I think of it as a lot smarter, programmable, that will be able to be integrated in new ways using the conditions within the contract, the smart contract, so conditionality. In the financial markets, has KYC and AML been checked and approved? Has compliance been achieved? All of those things can be baked into the smart contracts that support digital money.
I also see it as frictionless and we demonstrated this at the last CBDC pilot where sometimes its actually faster to take money in cash and put it into a bag, fly to Latin America and give the person the cash, rather than sending it over the traditional banking rails. And so we see that it will be frictionless, under a very strong regulatory control, the RBA will continue to have that regulatory control, compliance and then instantaneous. Im very excited by that. That when you want to do something after close of business hours in Australia, you have to wait until the next business day or potentially on to the Monday. We think that being able to subscribe to private credit funds, or alternatively do a repurchase agreement at a financial institutional level for a period of only a few years outside of Australian business hours is a significant improvement in where we are today and the future of money. And so we see that as a compliment to the current methods of payment, as well as cash.
Moderator
Thanks, Daniel. And does any of that conditionality, that sort of regulatory oversight, you know, to - Im sure theres a better word but does it offend principles of freedom of contract, of freedom of movement? Starting to see limitations on stablecoin holding proposed in the UK. Because you are our FinTech person on the panel, does it offend those, sort of, more libertarian principles?
Panelist
Well, as a person who operates within financial markets I believe the regulation and regulatory controls are always a good thing. I have great confidence in the halls of power in Australia, from my interactions with the Reserve Bank, ASIC and other organisations like AUSTRAC. The people are very good. Theyre very smart. Very honest. And also looking to make Australia a better place. And if I see that in a country, in the halls of power making this new regulation happen, I believe that we wont need to worry about the libertarian concerns that you might have heard, because I think thats just too black and white thinking. Its much more shades of grey. And if I look at the history of Australia, we have an egalitarian society supported by a very strong government, and also public service. And I believe that that will continue into a digital future.
Moderator
How diplomatically and beautifully put. Thank you, Daniel. And to bring us home, Brad, what does the deep future of money look like for you?
Brad Jones
Two things. One, if you look back at the sweep of the last couple of hundred years, it would be surprising if over the next 10 or 20, money doesnt also take a different functional form and do things that it doesnt currently do today. That would be observation one. So some things will change. At the same time, some things wont. And one thing that wont is the key - the foundational role of the Central Bank in supporting and anchoring the monetary arrangements in Australia.
Moderator
Thank you, gentlemen. Please join me in thanking these remarkable panellists.