Transcript of Question & Answer Session Technology and the Future of Central Banking at the RBA

Thank you, Michele. Great timing as well. We’ve allowed time for Q&A. There are going to be some people in the aisles with microphones and thank you, Michele, for offering your time and giving a really unique opportunity to ask questions of the Reserve Bank Governor. Please just raise your hand and we’ll try and get you to quickly. We’ll start with the media right here and the lady in the black.

Thank you very much, Governor. You spoke a little bit today about cyber resilience and data risks. I’m wondering if you could tell us a little bit more about how vulnerable you think the RBA is to a cyber attack today and what the consequences for households and businesses would be.

Well, I think it would be a very brave organisation, any organisation to say that they didn’t think that they were under attack, and I think our systems, given that we operate critical economy-relevant systems, we are conscious that we are under immense pressure. I couldn’t say we wouldn’t be - there couldn’t be a successful cyber attack, I wouldn’t want to say that, but we invest a lot of effort in certainly hardening our external-facing systems, but also in thinking about our disaster response, what would we do in terms of. So I have a great team who work on this. They are very focused. They work very closely with the Australian Signals Directorate and the Australian Cyber Security Centre. I think we’re as well prepared as we can be, but I think any organisation, we’re all under the same sorts of pressure and we can never say never.

If you were to have a central bank digital currency, and whether you make a choice as to whether you allow it to be interest bearing, could you comment on the trade-off between whether - because if it’s interest bearing no-one’s economising on cash balances and supposedly it’s the optimal quantity of money, but also the risk for a potential liquidity track, so could you comment on that trade-off?

Yes, it’s a question that is front of mind, actually, for most central banks who are thinking about central bank digital currency. One of the concerns is that if you’re in a situation where the safety of the financial system is being called into question that people might race to central bank digital currency and that will be a financial stability concern because deposits will move out of the banking system into the central bank digital currency. That’s one reason why, in thinking about designs of central bank digital currency, the question of would you pay interest or not, and in fact maybe what you would do is you would - to discourage something like that you could have negative interest. So you would charge people, effectively, to put their money in the central bank. So that could be some way of offsetting the incentives for people to do that.

The other way that some countries are thinking about it is putting limits on how much you can hold in central bank digital currency. I make the point, though, that no advanced economies have got central bank digital currencies yet. There are a few. China has one, and there are a few sort of in less developed countries, but advanced economies not. But it’s a very good point, and I think the way most people think about it in terms of interest bearing or not is that it might give you some advantages if people are rushing to - so think about cash, for example. During the GFC when interest rates were really low, particularly in Europe, people couldn’t get any interest on their holdings, but cash was zero interest rate but it was better than negative, so people were sort of moving into cash. This would allow you - if you had a central bank digital currency, you could pay a negative interest rate, it might allow you to offset the incentives for people to run to - it is a big issue and it’s something that all the central banks are thinking about.

Thank you, Governor. You’ve talked about the RBA has been currently using, utilising AI, so my question for you today is how do you plan to use AI in the future and what effects do you expect AI to have on the economy going forward?

Well, I tried to give a little bit of flavour of that in the talk. I think where we see it being really helpful for us is in assisting with analysis and research and getting some early stuff done and some simple stuff done quickly and efficiently. It’s also fair to say, though, that you do need to cast a critical eye over what it turns out. One of my colleagues asked it to do a reference list for a particular topic and it turned up some things that weren’t even real, articles that didn’t exist. So I think the way I see it, certainly on the policy side, is examples of - the sorts of examples we’re using it for at the moment, how do we synchronise or synthesise the vast amounts of data and information we have in qualitative and quantitative, how do we utilise that, and I think AI can help us very much so to synthesise that and bring that back to some information that the humans can then digest and use that in their analytical capability, so I think it’s promising.

Thank you, Governor. My question is in terms of transactional fraud. I mean, it costs Australia billions of dollars every year. I think the cost to confidence in the banking sector probably could be measured even higher. My question is, can or perhaps should the Reserve Bank get involved in making our banking systems safer for the betterment of all Australians?

Can I just clarify the question. So you’re asking - you think that the costs of the banking system on the economy are too high?

In terms of fraud.

Fraud and transaction fraud, right, yes.

I don’t know if it’s in your mandate to actually address this issue, but I guess the question is can or perhaps should the Reserve Bank get involved in this particular problem?

So it’s not - we do get a little bit involved, but it’s not scams and fraud and - so to the point I had earlier about cheques, cheques obviously took five days to clear. That gave you ample time to figure out if it was a fraud or not. Now when transactions happen instantaneously this is - it’s not just a challenge here, it’s a challenge around the world. I think the banks are doing something about this. There’s two sorts of scams and frauds. There’s one set which is people genuinely transfer money because it’s an investment. They think they’re getting an investment product so they genuinely make a - and then they discover that it’s a scam. There are other ones where they’re tricked into doing things. The banks, I think, are making progress - they’re certainly making progress, I think, on the ones where people are being tricked to send money to - they think they’re sending money to their friend and they’re actually sending to a fraudster. They are making progress on that one. On the other one, which is where people genuinely think that they are investing in a particular product and it turns out to be a scam, that’s a bit more challenging, and - now, having said that, should the Reserve Bank get involved? We don’t have a mandate to get involved in that. Consumer protection is not our mandate. That’s ASIC’s. But I think we are involved in the sense that we want to see quick, efficient payments, and we don’t want to see banks just block all payments because of the risks of frauds and scams. There’s a little bit of a risk, I think, of cutting off your nose to spite your face. We’ve got a fabulous fast payments service, but if the response to fraud and scams is to say, well, we can’t use it, then what have we got it there for? I think the role of the bank here is just bringing a lens of let’s think about this in a risk-based sense. There’s some transactions that actually that doesn’t look too risky, that can go, there’s others that it is worth holding up and impeding the efficiency of the payments system to do it. That, I think, is our role, to try and bring a lens of risk management to that process.

Thank you, Governor, and congratulations on an excellent start to your tenure. I was encouraged by your view that you want to work more closely with the universities. I was wondering, what are the prospects of some of the data being released to universities more readily?

That’s a good question, and I can’t pre-commit to anything, but we are restructuring our research department at the moment, and we are looking to engage more collaboratively with external. Now, can we bring people in to work with us on our data? Yes, I think that is entirely possible. Are we going to put it out there for everyone to see? I think that’s less likely. But we’re certainly looking for opportunities to bring people in to work with us on our datasets and the information we have and bring insights to that. That’s the way I would respond to that.

Thank you, Governor. Earlier you had a diagram with five boxes and one of them was public interest.

Yes.

That always worries me. What does it mean? What I mean by that is how well do you define it, what parameters, and also moving from a society that’s fairly homogeneous to one that’s much more heterogeneous, and perhaps a fair bit of emerging polarisation, how are you looking, or are other people that decide what public interest is for you, how should they take that evolving society into account into how public interest may actually change in definitional terms? Thank you.

Look, it doesn’t have a very firm definition and I think the definition depends a little bit on what function of the bank you are thinking about. In monetary policy sense we have our dual mandate, so serving the public interest there is trying to have low and stable inflation and full employment. That’s sort of the public interest there. On the payments side, the public interest is efficient, competitive payment systems but safe and resilient payment systems as well. That’s serving the public interest. In terms of our operations, again it’s down to resilience and it’s about delivering services in as a cost-effective way as we can for the Australian public. I think there’s no-one definition fits all, but I think it relates very much to all of the different bits of what we do.

Thank you, Governor Bullock, for your lecture. It was very well spoken. One interesting thing that you mentioned was that the RBA is using text analysis to produce indicators of economic activity based on your liaison reports. You also mentioned that those text analysis data variables were outperforming traditional forecasts of inflation based on the RBA’s models. Given that monetary policy is forward-looking, based on forecasts of inflation, GDP, do you think there’s a strong possibility of the RBA using text analysis to better inform forecasts and to directly improve monetary policy decisions?

One point I probably should make right up front is yes we have a lot of models, we do a lot of modelling and we have a lot of forecasts from those models, but we also overlay our own judgment on top of those things. I personally don’t see a world where we place all our faith in a model and we don’t use our own sense check on what’s going on. I think the point about the text analysis and that point about putting it into the models of wages growth to see how it - we’ve sort of been doing that in a sort of anecdotal way. I remember back when interest rates were very low back in 2023 and we weren’t seeing signs in the hard data that wages were rising, but we were hearing it in our liaison visits. So I think what we’re doing in this new context of using the text analysis is it’s allowing us to a bit more formalise that in our models, but it’s still taking the same information that we had but it’s just using it in a slightly different form in the models. We don’t place absolute faith in the models, it’s just, again, a sense check for us. That’s the way I would describe it. We’ve always been using that information and this is another way of using it but using it more formally alongside other data points to model things. That’s the way I’d think about it.

Thanks, Governor. Welcome to Perth. You mentioned at the start very briefly that free trade, floating exchange rates and flexible prices were under threat. Is that the biggest threat to Australia’s economy, and at a joinder that’s not related, but I know everyone listening online to the livestream will love to know your views on Australian consumers at the moment, how are they feeling and do they need more support from a lower interest rate?

There’s always one. On free trade, I think Australia has done very well out of a free trading economy, a deregulated economy, floating exchange rate. We’ve done very well, and what’s going on in the world economy at the moment, it’s not great, but if you look at what some of the worst possible outcomes we were looking at earlier in the year, they don’t appear to be eventuating. At the moment what we’re seeing is a massive increase in the effective tariff rate in the US, but if you look at the world effective tariff rate it’s bumped up a bit, but not too much. The reason being that most countries have not retaliated. Most countries have realised that to do so would be shooting themselves in the foot, in effect, and certainly that’s the case here. Retaliating putting tariffs on in Australia would not be good for us. We’re better off trying to persist with the free trade model. Is it a threat? Yes, it is still a bit of a threat, and I think part of the issue here with tariffs in the United States is that not just that they’ve gone up a lot, and they have, it’s just the unpredictability of them and what they will be used for, because they’re not even necessarily be used for trade purposes, they’re being used for all sorts of purposes. So I think that is still a big uncertain thing, cloud, that’s hanging over the world economy, but so far at least the lack of retaliation by many other countries means we haven’t seen the possibility of a - in our - I think it was our May statement on monetary policy right after the tariffs came on in the US in April we had a scenario which we called world trade war, and that was going to be really bad for Australia, but we actually think now we’ve stepped right back from that. That’s not really something we think is imminent, mainly because of the way other countries have reacted, so I think that’s - on the consumer, well, we had some data today on the national accounts, obviously, and I’d say that for some time we have been predicting that the Australian consumer would start to spend a bit more, and they are, slowly. They’re value conscious, and we hear this from our liaison, that people are spending but they’re value conscious. They’re starting to spend on non-discretionary items. But we’ve been expecting this because real incomes - real disposal incomes have been rising for about a year now, wealth is rising because housing prices are rising, and normally under those circumstances you would expect to see consumption starting to rise. So we are seeing it come back, and that’s welcome. We’re seeing the private sector start to demonstrate a little bit more growth now, which I think is positive. What it means for future of interest rates I don’t know at this stage, but all I would say is that if anything, probably, it’s a little stronger than we thought it would be. So that’s good, but it does mean that it’s possible that if it keeps going then there may not be many interest rate declines left to come. But it all depends.

Thank you so much for the lecture, Governor. Am I audible? Okay. We’ve been observing how companies like Open AI and Meta are doing their best to tap the brilliant minds of AI. What does RBA and you doing to have great talent?

To create talent or attract talent?

Attract.

Well, I don’t think we can compete with Open AI or even Google or - but, look, I think we’ve got some good data scientists in the bank, and the value proposition for people that come to work in the bank - it’s not for everyone, but the value proposition is talking about the public interest. You are doing something for Australia if you come and work at the Reserve Bank. We can’t pay the sorts of large salaries that some of these really, really top companies can, but I think - we’re not building large language models. We are using them to build our own little applications which use those to provide us with assistance in our research and analysis. I think we have got people who are in the bank who are already interested in this, and we can attract people who I think are interested in putting their skills to use for the Australian public.

A couple more questions. We are getting on to full-time, but maybe one more over here and one more after that.

Thank you for the talk (inaudible) as the central banks across the world, especially in advanced economies (inaudible) cautiously, what do you think is the future and how do you think does this affect the (inaudible) because I think the key value there is the technology (inaudible) no central banks in advanced economies have actually started (inaudible) keen to get your thoughts on that.

I think different central banks around the world have different perspectives on this. You would know, of course, that in the US the Fed has been banned from issuing a central bank digital currency, so that’s the attitude in the United States. I think in Europe they are progressing with this, but I think their interest is in the fact that they have a monetary union and they want to maintain the monetary union, and I think a lot of other countries are interested in being able to be fast followers if they need to be. So if some country issues a central bank digital currency and we feel we need to be a fast follower, because perhaps we think maybe there’s a threat to the Australian dollar - I don’t personally there think would be, but that might be a reason to. Interestingly, and some of you may already know this, the dramatic interest in central bank digital currencies came about because Facebook launched a thing called Libra many years ago and that absolutely galvanised the central bank community to say - they were worried that Facebook would launch this, effectively, international currency and it would usurp their local currency. So that was what drove it. I don’t think there’s that same urgency about it any more. But I also think that it’s not clear to me that retail central bank digital currency has a role. Australia has a great payments system. I don’t think we need necessarily a central bank digital currency. Having said that, I want to be keeping up just in case. I want to be a fast follower if I need to be. I think what is much more interesting is what’s going on with the so-called stable coins, because unlike the pure crypto they do have stability so you can rely on the value of the stable coin, and so they are a bit more money-like. I think it’s also interesting, to your point about the technology, that the distributed ledger technology and the potential to leverage that for assets and be able to fractionalise assets, so you could put government bonds on the ledger and then you could sell fractions of them to people. So there’s lots of potential, I think, for that technology with asset markets. Then the question which we’re addressing in Project Acacia is what sort of digital currency might in fact be effective to assist with that whole process of assets on the ledger and how you trade and settle those assets. So I think that’s where a lot of work is going in at the moment and I think that’s an area to watch.