On December 13, 2017, the governor of the Reserve Bank of Australia, Philip Lowe, delivered a speech entitled "An eAUD?" before the Australian Payment Summit. In his remarks, the governor noted the possibility of a currency based on distributed ledger technology.
"Today I want to share with you some of our thinking about this future and to address a question that I am being asked increasingly frequently: does the RBA intend to issue a digital form of the Australian dollar? Let's call it an eAUD," proposed Lowe.
"The short answer to this question is that we have no immediate plans to issue an electronic form of Australian dollar banknotes," he explained, dampening the hopes of fintechnophiles. "But," he added, "we are continuing to look at the pros and cons. At the same time, we are also looking at how settlement arrangements with central bank money might evolve as new technologies emerge."
Lowe shared with his audience five "working hypotheses" regarding the future of banking and electronic payments. In brief – though not all that brief – they are:
1. There will be a further significant shift to electronic payments, but there will still be a place for banknotes, although they will be used less frequently.
2. It is likely that this shift to electronic payments will occur largely through products offered by the banking system. This is not a given, though. It will require financial institutions to offer customers low-cost solutions that meet their needs.
3. An electronic form of banknotes could coexist with the electronic payment systems operated by the banks, although the case for this new form of money is not yet established. If an electronic form of Australian dollar banknotes was to become a commonly used payment method, it would probably best be issued by the RBA and distributed by financial institutions, just as physical banknotes are today.
4. Another possibility that is sometimes suggested for encouraging the shift to electronic payments would be for the RBA to offer every Australian an exchange settlement account with easy, low-cost payments functionality. To be clear, we see no case for doing this.
5. It is possible that the RBA might, in time, issue a new form of digital money – a variation on exchange settlement accounts – perhaps using distributed ledger technology [emphasis mine]. This money could then be used in specific settlement systems. The case for doing this has not yet been established, but we are open to the idea.
One of the greatest questions regarding central bank digital currencies (CBDCs) is whether they will be issued by existing central banks. With private sector equivalents (e.g., Tether) gaining popularity, the traditional financial infrastructure is being given a run for its money – quite literally. Of course, there are numerous questions regarding oversight, liability, and monetary policy. The questions, and their complex answers, are difficult to parse.
"In principle, there is nothing preventing tokenised eAUDs being issued by the private sector," said Lowe. "It is conceivable, for example, that eAUD tokens could be issued by banks or even by large non-banks, although it is hard to see them being issued as cryptocurrency tokens under a bitcoin-style protocol, with no central entity standing behind the liability."
This is a fine point, which speaks to one of the greatest challenges of private currency. Namely, who is underwriting your value? The governor picked up on this matter.
"While a privately issued eAUD is conceivable, experience cautions that there are significant difficulties and dangers associated with privately issued fiat money," he said.