No Need For Central Bank Digital Currency In Australia, Says RBA Assistant Governor

News | October 25, 2018 By:

Michelle Bullock, Assistant Governor of the Reserve Bank of Australia (RBA), said that the bank has yet to find a convincing reason to create a national cryptocurrency settled on blockchain.

Speaking at the Swift International Banking Operations Seminar (SIBOS) in Sydney, Bullock said that while the RBA is still open to considering wholesale applications for a digital Australian dollar, it hasn’t yet been convinced of the need to create one. She added that they are not interested in having a digitized version of the Australian dollar for domestic use since the current system already works well and “users don’t actually need access to direct settlement to do lots and lots of business.”

“I’m interested to consider what frictions these technologies are designed to address [but] in many cases I just don’t see what the point is,” Bullock said.

Bullock said that they do have more of an open mind on the issue of wholesale and whether or not central bank digital currencies should play a role in assisting with perhaps supply chains, cross border. But it is up to the blockchain sector to prove the advantages of the new tech over existing systems.

“It remains for industry to demonstrate to us really why what we have got available in terms of payments systems, including those still coming on board, can’t actually deliver that already,” Bullock said. “I am not convinced that it has a use.”

Some financial analysts think that a central bank digital currency (CBDC) may give central banks more control over their business and economic activities if interest rates drop to zero. It would also allow central banks to stimulate the local economy as it would let them increase interest rates on deposits made by their clients.

However, Bullock said that a CBDC would complicate the management of monetary policy and liquidity for central banks in times of crises such as a bank run.

“In a crisis, people would rush into the central bank currency, like they hoard cash,” Bullock said. “That would take liquidity out of the system and center it in the central bank. That might make the management of liquidity and monetary policy more difficult in those circumstances.”

Manish Kohli, global business head for payments and receivables at Citi, agreed that in a market with CBDCs, a flight to the central bank currency means “the possibility of a run on a bank is increasingly more likely.”

“While the intent would be to do good for the economy, it actually has the potential to be destructive,” Kohli said.