Transcript of Question & Answer Session After Acacia: The Next Era of Financial System Innovation?

Thank you, Brad, not only for that great speech, but also some terrific charts. I love a good chart. For anyone who has questions that you’d like to pose to Brad, there should be a QR code coming up on the screen behind us that you can use to submit questions to Slido.

So, Brad, where do you think Australia sits globally in the development of digital money, tokenised financial infrastructure, and how will Project Acacia influence that position?

I think prior to Acacia the general sense that I got from engaging with industry on this issue is that Australia was sitting some ways back off the frontier. I would say the totality of what we’ve learnt, the engagement that’s come to the fore across industry and regulators, has now put the country in a position where that gap could be closed quite quickly if there is sufficient appetite.

We’ve surfaced through Acacia a range of challenges that mean we now know what needs to happen to press right up on to the frontier, again, if there is appetite. And that appetite has got to be broadly shared.

There is the industry piece of that. There is the piece for the regulators. And, of course, government has a role as well. So we’re kind of all in this together, but I’d say Acacia has now set us up really well to close that gap if there is collective ambition.

Great. Well, I might turn to some of the questions because there’s quite a few coming in. One of the first ones that’s come through is: does the RBA see the opportunity for new market infrastructure operators to facilitate this sort of activity, so beyond ASX or AUSCLEAR?

The bank has a very broad mandate in the system. The things that we care most about are competition, efficiency and resilience. So, to the extent that there is new sources of competition in any aspect, market infrastructure or really any aspect of the ecosystem that is consistent with those outcomes, making our system more dynamic, more competitive and more resilient, we welcome it.

So, another question from the audience is: you’ve talked about many of the positive opportunities that can come from tokenisation and digital assets. There’s some curiosity about the risks or concerns that should be considered.

Yeah, I think it’s really important that we keep focused on those challenges and be clear-eyed about exactly what form they take. I think that the types of challenges, they actually fall into two buckets. One is outside of tokenisation, what could we do? Extension of trading hours and so on -- are there certain things we could do that don’t necessarily require tokenisation technology to come to the fore?

But on the tokenisation piece specifically, I think the main ones are on the liquidity benefits, do you forgo some or all of those if you have to pre-fund trades? That’s a question that comes up. Related -- if we end up having all these different ledgers around, does the same amount of liquidity just get fragmented on to these different platforms? That’s a challenge.

There are ongoing questions, although I would say they’re actually reducing through time as we’ve gotten our arms around them, on the technology. So, on the technology, some years ago, lots of questions about security, resilience, scalability. I feel like the industry globally has moved quite some ways to addressing a lot of those. There are still, I think, for central banks, big questions about issuing central bank money on to an external ledger, a ledger that it didn’t have control of. That’s not something that happens today.

We deliberately set up Acacia to kick the tyres on that and we learnt some interesting things, but there’s open questions that central banks are starting to turn to around that side.

And then, finally, there are some outstanding legal and regulatory questions. I mentioned some of them in the speech, although, again, I would say over the course of Acacia -- and this is the benefit of drawing in lots of expertise into the project, including having lawyers around the table, which was surprisingly beneficial, actually, if I can be so bold. It was actually terrific having their insights, insights from the legal community weighing in. And one of the things that will come out in the final report more clearly is, if there are certain issues that were surfaced in Acacia where industry would really value picking up and running with and doing a deep dive and it could -- outstanding legal issues around, say, smart contracts could be an example. If industry wanted to further pursue those issues, then I think you’d find a lot of support between the CRC, ourselves, our CFR partners, we could think about what sort of support we could provide for those efforts.

There’s quite a few questions coming in about resilience, which I’ll turn to in one minute, but just to choose one of the questions with quite a few votes, which has been asking whether banks have accommodated the tokenisation project given of all the participants they have the most to lose.

My sense is from where we started out, the day before Project Acacia, I wasn’t really getting any sense that banks were actively looking at the tokenisation of bank deposits.

I mentioned in my remarks where we’ve seen banks globally really leaning into that space, principally the United States, to some extent Europe -- and the reason for that, I think, is that stable coins are starting to circulate, particularly in the United States. Stable coins are being viewed by the larger banks as a possible competitive threat. And there’s also activity starting to emerge of significant scale in these markets. The banks can see, not just from a defensive perspective but actually they can see commercial opportunities for them in providing products and services around that activity. The banks have really leant in over there. And what we’ve seen through Acacia is increasing engagement by the banks from a low starting point, but increasing engagement. And that’s also part of the reason why we are happy to support the Bank Deposit Token Working Group continuing, and in fact expanding after Acacia, because we do believe banks have a critical role in providing a form of tokenised money in the digital era. And there’s been enough momentum built up, I think, through Acacia that senior people are now getting engaged in a way that maybe wasn’t the case previously, and I think that’s good for the country.

Probably the most popular question is about opportunities that you might see for interaction between tokenised assets and existing payment rails, such as the NPP.

Yes, one of the really interesting insights from Acacia -- and I don’t think any of us really expected that’s where we’d land -- was that we could be waiting for a long time for some magical piece of infrastructure to pop out of thin air and solve all of our problems. In fact, the more realistic path to making progress that could compound over a period of years is using, in a more creative and a more expansive way, some of the infrastructure we already have, and the NPP fits into that bucket.

So, a couple of use cases which tapped into the NPP rails and found actually it could replicate a number of the benefits that more advanced forms of ledger and tokenised money and asset arrangements could produce. So, if you think about putting one foot in front of the next, we haven’t squeezed the lemon hard enough in terms of what’s possible with our existing rails, and that’s where I think the concept of synchronisation operators also could have a more profound role than we probably expected at the outset in helping the country to make incremental measured sequential progress to a better future.

If we can just to finish up, just switch gears a little bit to your other role as part of the Council for Financial Regulators, or the CFR. We’re all experiencing and operating in incredibly dynamic and heightened geopolitical uncertainty, and the risk environment’s just crazy. How’s the work of the CFR continuing to evolve? And with a very significant part of the payment industry here today, what message about resilience and the work of the CFR would you like to share with the audience?

Yes, it’s an important question. This is an issue we’ve been working in the background on for a number of years now. I’d probably just leave you with two messages.

One, I think it would be a mistake to view what’s going on as cyclical. I would view the sort of disruption that we’re now having to think hard about as structural in nature and resource and prioritise accordingly.

Second of all, there’s always a risk when regulators or policymakers are talking to industry about risks that it gets interpreted as, well, this is another compliance undertaking. A couple of things there.

One, these sorts of issues connect to the broader national interest and there can be occasions -- and I think this is one -- where the private interest and the national interest fully align. And so investments that you all decide to make in strengthening the resilience of your systems and your operations, I suspect could in time be viewed not just as in the national interest but actually a source of comparative advantage.

We know in surveys that consumers and businesses are more focused on issues around security and resilience than ever before. And I can absolutely see a future where the cutting edge of technology -- and many folks here live on that edge -- where businesses are competing not just on efficiency grounds, but on resilience grounds, where having a more resilient product offering is actually a source of competitive advantage; that’s actually great for the country as well.

Well, it’s a good note to end on. Brad, thank you for taking time out of your day to join us here and for sharing the insights from Project Acacia and also that very important final message. Thank you.