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However, banks and the RBA say potential benefits of CBDC will only be realised if the government makes parallel changes to multiple existing laws.
The RBA’s pilot project, which is being conducted alongside the Digital Finance Co-operative Research Centre, is also mapping necessary law reform that would need to accompany any move towards CBDC in Australia.
The Commonwealth Bank project, which is being conducted with US-based financial software developer Intuit, will test whether GST collection can be automated.
It will also consider whether GST credits can be paid at the same time as payments are collected, rather than requiring claims to be made via a BAS.
“We can automate the GST collection at the point of sale. Regarding the GST credit, our future ambition is to get that done at the same time as well,” said Sophie Gilder, head of blockchain and digital assets at Commonwealth Bank.
Filling out a BAS creates a large administration burden, especially for SMEs without an accounts department, so a CBDC could therefore end up reducing demands for SME working capital. But one of the laws that will need to be changed is its requirement for a BAS to be filed each quarter.
“We are learning what regulatory changes must be made to facilitate the possibilities the technology allows,” Ms Gilder said.
“Since the RBA pilot is real, existing legislation applies. So, we might be trying to do something beneficial, but not be allowed to do it today because when the legislation was written, no one had thought of this.
CBA’s Sophie Gilder: “We might not be allowed to do it today because when the legislation was written, no one had thought of this.” Ben Rushton
“We are running into all sorts of interesting areas where the technology allows you to do this, but if you look at the rules, we are not allowed to do it today – so that identifies future work.”
ANZ, alongside the fintech Oban, will also trial CBDC in SuperStream payments.
Under the existing process, it can take between 10 and 15 days after a super contribution is made before a fund manager has cleared funds and buying instructions. This adds to the cost of managing the super system, which is ultimately passed on to investors. CBDC could create instant investment instructions.
“That is what we are testing,” said Nigel Dobson, banking services portfolio lead at ANZ.
“I can’t say for certain that will happen, but that is the ambition: matching the data and the payment and allowing a faster investment cycle than one which exists today,”
ANZ will also test offline payments using CBDC that will allow card payments to be made when the telecommunications system or payments go down. The pilot will use a stored value physical card uploaded with digital dollars, allowing an anonymous payment to be made on an Android app that would not have to be connected to any phone network.
“Longer-term use cases could be in flooded or burnt-out areas, you can replicate cash, especially in an emergency zone when you don’t have connectivity,” Mr Dobson said.
Carbon markets
CBA and ANZ are working together on another one of the RBA’s pilots, to create digital representations of biodiversity and carbon credits. The CBDC would allow trades to settle instantly, with payment and title being exchanged simultaneously. This is known as “atomic settlement” and is another advantage of transacting with CBDC.
The banks will create a non-fungible token off the credits, linking a unique digital asset with data that backs the value of the credit, such as the species in a geographic area and type of biodiversity region.
“It is really about trust – you know precisely what you are buying as you have all the information at your fingertips, so investors can be sure,” Ms Gilder said.
“To get the full benefits of a tokenised asset, you want a form of payment that can seamlessly integrate with the digital asset, so you can have atomic settlement.”
A study released by Juniper Research this week found the value of payments via CBDCs is forecast to reach $US213 billion annually by 2030, up from just $US100 million in 2023.
CBDCs are expected to roll out to real market applications over the rest of the decade.
“Adoption will be driven by governments leveraging CBDCs to boost financial inclusion and increase control over how digital payments are made,” Juniper said.
The RBA’s pilots will take place over the coming months, with a final report expected to be published mid-year.
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