No need for central bank digital currency in Australia says Reserve Bank

While other countries may be placing central bank digital currencies - also known as CBDCs - at the top of their agenda, Australia could buck the trend.

According to a local news report on Sept. 17, the Reserve Bank of Australia's latest payments paper has taken a cautious and sceptical line toward CBDCs as well as private-sector stablecoins.

The central bank's paper analyzed the initiatives underway in Sweden, Canada and China - three of the most proactive countries in CBDC development.

The Bank of Canada has been readying itself for the potential issuance of a retail CBDC as and when it becomes desirable.

Canada envisages two scenarios in which CBDC issuance could become advantageous - a collapse in cash use for everyday transactions, or threats to monetary policy from the circulation of a private-sector digital currency.

In the RBA's view, a CBDC could have significant downsides for the country, including higher funding costs for commercial banks.

Loss of deposit funding could push commercial banks to rely on funding from equity and capital markets to a greater extent.

"The loss of deposit funding and greater reliance on other funding sources could result in some increase in banks' cost of funds and result in a reduction in the size of their balance sheets and in the amount of financial intermediation."

A CBDC could increase the likelihood of a run on the banking system in case of financial stress.

RBA claimed that "In the presence of a CBDC, a run on the banking system as a whole would become feasible; if depositors had concerns about the entire financial system, they could seek to make large-scale transfers of commercial bank deposits into CBDC.".