Reserve Bank of Australia on a mission to explore digital currency options
What is a CBDC, and what makes them stand out from other cryptocurrencies?
Way before cryptocurrencies were established, we were already surrounded by digital transactions and credit cards. With the later advent of smartphones, banknotes began losing their appeal and use cases, as did ATMs. Over the past 10 years, ATM use has fallen by about a third, according to the RBA.
Now, the RBA and its equivalents around the world are searching for digital forms of money to issue themselves. The research in question seeks to understand how commercial banks can use CBDCs and to investigate use cases on the wholesale market and in retail, focusing on how the public may benefit from this in the future.
The distinctive feature of cryptocurrencies is their decentralized nature. Cryptocurrencies are not regulated by governments, and transactions using these currencies are secured via keys, unlike fiat currencies. Bitcoin and Ethereum can be considered two of the most significant of these currencies.
Stablecoins that replicate fiat currencies were created to regulate price volatility in crypto and seemed like a great idea. Stablecoin's value was fixed to that of fiat currencies, such as the USD, meaning you could literally hold USD without needing a bank. Yet recently the failure of TerraUSD has shown us all the instability of crypto markets. The good news is that CBDCs might be a solution.
Michael Bacina, a fintech specialist and partner at Piper Alderman, says the involvement of a central bank and a digital currency established by that institution will bring certainty to the regulation of digital assets and that they have confidence in the money they are issuing today.
What is the RBA’s plan, and why are they so interested in CBDCs?
Mostly just for exploration and testing the waters. RBA Deputy Governor Michele Bullock says that it is not certain this is inescapable, but it is a good idea to understand the principles of digital currencies and how they might be designed, while maintaining a focus on setting a privacy standard that the public might accept.
Their focus will not be exclusively on the technology, but on the practical side of things as well.
He added that there isn’t any valid or final decision about the amount of tokens that can be used in CBDCs or about which institutes will issue CBDCs.
Is there really any interest?
The market for digital currencies is growing rapidly according to an Australian Securities and Investments Commission report on investor behavior.
It shows that for the 1,053 investors who participated in the survey, their cryptocurrency investments equaled their housing investments, while their cryptocurrency investments were second (at 44%) to investments in Australian shares, the most common assets they held (at 73%).
What is the researcher's opinion?
The CEO of the Digital Finance Cooperative Research Center, Andreas Furche, says that although the RBA has shown both interest and caution in the matter, there is still no final decision or anything solid around the corner yet.
There will be a trial phase using registered parties and the outcome will be observed.
He also added that the people building this foundation are not necessarily experts on building this kind of foundation, so it is not correct to make any assessment or have any ideas based on what they think, but rather one should observe the outcome. He added that this is a good opportunity to react to people's interest in stablecoins, and also an opportunity to reduce the volatility in these currencies. Although there is a lot of interest in stablecoins, they are not completely safe. However, CBDCs will be based on a national currency, making them more definitive.
What is the market players’ opinion?
Chloe White is an independent consultant who was a representative of the Department of Finance in the Council of Financial Regulators, which examines cryptos. She says the blockchain and the ecosystems linked to it will not be affected by whether governments issue CBDCs or not.
"What we are experiencing on cryptocurrency markets is no different than what we observe in the traditional system in the sense that transactions are carried out and by-products are created."
Also, it might be important for national security to have CBDCs so that we don't miss out on new technologies and how business is changing, which is in different and new ways.
She uses China as an example of a country that is determined to put this new system into place and use it well in its economy to get more power.
"The fintech world has been progressing and adapting at a very fast pace since the beginning of the Internet. Just look at the Netflix invasion and Amazon’s progress as examples, of how these companies have gained power and dominance using the Internet. Yet we had no idea that could even happen when they were first launched on the market."
analyst opinion
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What is a CBDC, and what makes them stand out from other cryptocurrencies?
Way before cryptocurrencies were established, we were already surrounded by digital transactions and credit cards. With the later advent of smartphones, banknotes began losing their appeal and use cases, as did ATMs. Over the past 10 years, ATM use has fallen by about a third, according to the RBA.
Now, the RBA and its equivalents around the world are searching for digital forms of money to issue themselves. The research in question seeks to understand how commercial banks can use CBDCs and to investigate use cases on the wholesale market and in retail, focusing on how the public may benefit from this in the future.
The distinctive feature of cryptocurrencies is their decentralized nature. Cryptocurrencies are not regulated by governments, and transactions using these currencies are secured via keys, unlike fiat currencies. Bitcoin and Ethereum can be considered two of the most significant of these currencies.
Stablecoins that replicate fiat currencies were created to regulate price volatility in crypto and seemed like a great idea. Stablecoin's value was fixed to that of fiat currencies, such as the USD, meaning you could literally hold USD without needing a bank. Yet recently the failure of TerraUSD has shown us all the instability of crypto markets. The good news is that CBDCs might be a solution.
Michael Bacina, a fintech specialist and partner at Piper Alderman, says the involvement of a central bank and a digital currency established by that institution will bring certainty to the regulation of digital assets and that they have confidence in the money they are issuing today.
What is the RBA’s plan, and why are they so interested in CBDCs?
Mostly just for exploration and testing the waters. RBA Deputy Governor Michele Bullock says that it is not certain this is inescapable, but it is a good idea to understand the principles of digital currencies and how they might be designed, while maintaining a focus on setting a privacy standard that the public might accept.
Their focus will not be exclusively on the technology, but on the practical side of things as well.
He added that there isn’t any valid or final decision about the amount of tokens that can be used in CBDCs or about which institutes will issue CBDCs.
Is there really any interest?
The market for digital currencies is growing rapidly according to an Australian Securities and Investments Commission report on investor behavior.
It shows that for the 1,053 investors who participated in the survey, their cryptocurrency investments equaled their housing investments, while their cryptocurrency investments were second (at 44%) to investments in Australian shares, the most common assets they held (at 73%).
What is the researcher's opinion?
The CEO of the Digital Finance Cooperative Research Center, Andreas Furche, says that although the RBA has shown both interest and caution in the matter, there is still no final decision or anything solid around the corner yet.
There will be a trial phase using registered parties and the outcome will be observed.
He also added that the people building this foundation are not necessarily experts on building this kind of foundation, so it is not correct to make any assessment or have any ideas based on what they think, but rather one should observe the outcome. He added that this is a good opportunity to react to people's interest in stablecoins, and also an opportunity to reduce the volatility in these currencies. Although there is a lot of interest in stablecoins, they are not completely safe. However, CBDCs will be based on a national currency, making them more definitive.
What is the market players’ opinion?
Chloe White is an independent consultant who was a representative of the Department of Finance in the Council of Financial Regulators, which examines cryptos. She says the blockchain and the ecosystems linked to it will not be affected by whether governments issue CBDCs or not.
"What we are experiencing on cryptocurrency markets is no different than what we observe in the traditional system in the sense that transactions are carried out and by-products are created."
Also, it might be important for national security to have CBDCs so that we don't miss out on new technologies and how business is changing, which is in different and new ways.
She uses China as an example of a country that is determined to put this new system into place and use it well in its economy to get more power.
"The fintech world has been progressing and adapting at a very fast pace since the beginning of the Internet. Just look at the Netflix invasion and Amazon’s progress as examples, of how these companies have gained power and dominance using the Internet. Yet we had no idea that could even happen when they were first launched on the market."
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