Australia’s Reserve Bank Assistant Governor: No Legitimate Use Case For Central Bank Digital Currency

Michelle Bullock, the assistant governor at Australia’s reserve bank (RBA), recently commented on the viability of central bank digital currency (CBDC) during the Swift International Banking Operations Seminar (SIBOS) being held in Sydney.

Bullock revealed that Australia’s apex bank has not yet found a legitimate reason to develop a cryptographic and distributed ledger technology (DLT) based version of the Australian dollar (AUD).

Moreover, Bullock said that the RBA does not think any research or development (R&D) efforts directed towards creating a crypto-based AUD for locals would be beneficial. She argued that the nation’s current financial system – which like most countries is managed and facilitated through the issuance and circulation of fiat money – works quite well.

There is therefore no need to consider launching a CBDC for this particular requirement, Bullock argued.

Fintechs Could Provide Use Cases For CBDCs

According to the Financial Review, Bullock does think there may be other very limited use cases, or applications, of CBDCs. She explained that fintech firms might be able to effectively use CBDCs to handle certain types of transactions.

Commenting on how fintech companies need to prove, or demonstrate, that a certain technology is useful, Bullock said: 

We 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 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.

An “Untested Idea”

Notably, proponents of CBDCs claim that their issuance may have certain benefits such as allowing banking institutions to run negative interest rates. Although this concept has not yet proven to be effective, it has been argued that it could help resolve the “zero lower bound” problem.

This issue is often considered a flaw in the implementation of traditional monetary policies as when interest rates are at close to zero, central banks are unable to stimulate the local economy.

However, Bullock cautioned that a CBDC would not allow banks to run negative interest rates as its “an untested and quite a different idea.” She added that in a crisis situation, CBDCs could make it easier to do “bank runs” – similar to how people start accumulating, or hoarding, large amounts of cash.

Need To Eliminate Cash To “Overcome Lower Bound On Nominal Interest Rates”

Should this happen, it “would take liquidity out of the system and centre it in the central bank. That might make the management of liquidity and monetary policy more difficult in those circumstances.”

As CryptoGlobe reported recently, Masayoshi Amamiya, Bank of Japan’s (BoJ) deputy governor, had said that “for central banks to overcome the zero lower bound on nominal interest rates, they would need to get rid of cash from society.” This, he thinks is impractical because cash transactions are among the most common types of payment methods in Japan.

Expressing views similar to those held by Bullock, Amamiya said the BoJ is not considering developing a CBDC for payment and settlement. He added that transitioning from the existing state-backed fiat money system to a crypto-based economy is “quite a high hurdle.”