Reserve Bank governor Philip Lowe said the fast evolution of technology could see the central bank support ‘central bank digital currency’ in the retail market, as consumers look to pay for things using ‘tokens’ held in digital smartphone wallets instead of money in bank accounts.
In a significant speech pointing to the battle for control of money between central banks and private technology companies, Dr Lowe pointed to a shift in the Reserve Bank’s historical scepticism towards developing a retail ‘central bank digital currency’ (CBDC).
As big technology platforms like Apple and Google enter the payments space and thousands of volatile cryptocurrencies are created on the back of the bitcoin boom, Dr Lowe said the RBA may support the issuance of ‘tokens’ to create an “eAUD” and is in discussions with global central banks about the risks of such a response, including impacts on commercial banking deposits.
An eAUD would be a digital version of cash. It would be a liability of the central bank, different to digital money held in commercial bank deposits.
The RBA is “open to this possibility”, Dr Lowe said, even though a strong public policy case is yet to be made out.
“It is possible, however, that the public policy case could emerge quite quickly as technology evolves and consumer preferences change,” Dr Lowe said in a speech on Thursday morning to the Australian Payments Network Summit.
“It is also possible that these tokens could offer a lower-cost solution for some types of payments than provided by the existing technologies.”
Dr Lowe also confirmed The Australian Financial Review’s report on Thursday that buy now, pay later providers could be prevented from stopping retailers surcharging under legal changes to be pursued by the federal government. The ability to surcharge could help merchants negotiate lower BNPL costs, he said.
“It is important for a level playing field,” Dr Lowe said. “Debit and credit card operators can’t have such rules, and it would be good over time if buy now pay later operators didn’t have those rules as well. They could do that voluntarily, or regulatory arrangements might evolve over time to allow it to be done.”
Treasury said on Wednesday it would lead a review of the viability of a retail CDBC in Australia in partnership with the RBA, “including investigating the potential economic benefits, opportunities, and risks”.
Treasury said this would commence in the second half of 2022, with advice to be provided to government by the end of 2022.
Dr Lowe said the RBA is “continuing to examine closely the case for a retail CBDC and working with other central banks on this issue”.
The introduction of a retail CBDC would be a response to increasing share of electronic payments being made through the digital wallets offered by the large technology companies, including Apple Pay, Samsung Pay and Google Pay.
Currently, these create digital representations of bank cards and sit on top of existing bank accounts. But Dr Lowe said digital wallets could “provide more than just access to existing bank and credit card accounts. In particular, they could contain digital tokens that could be used to make payments.”
“We are working through the relevant technical issues, as well as the broader policy implications of any shift away from a payments system based on the movement of value between bank accounts, to one that uses tokens,” he said.
“This could allow day-to-day payments to be made by moving tokens around rather than moving banknotes or value between bank accounts.”
Such tokens could be issued by the central bank, a private bank, or another private entity. This year has seen a proliferation of private cryptocurrencies.
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