Introduction to Digital Currencies in Australia
Australia’s central bank, the Reserve Bank of Australia (RBA), has announced its next stage in exploring digital currencies. The bank is launching a trial to examine how digital money and tokenization can support wholesale financial markets. This trial is part of Project Acacia, a joint initiative between the RBA and the Digital Finance Cooperative Research Centre.
The Trial: Phase Two of Project Acacia
The trial will involve a diverse range of organizations, including local fintech firms and major banks. These organizations will test 24 use cases, 19 of which will involve real money and five proofs-of-concept involving simulated transactions. The tests will cover a range of asset classes, including fixed income, private markets, trade receivables, carbon credits, and new ways of using bank accounts at the RBA.
Major Banks Participating in the Trial
Three of the four major Australian banks are participating in the pilot: the Commonwealth Bank (CBA), the Australia and New Zealand Banking Group (ANZ), and Westpac Banking Corporation. The CBA will work with JPMorgan to evaluate how digital currencies and collateral records could deliver greater efficiency and liquidity with lower risk in the repo market. The repo market involves short-term borrowing and lending of funds, secured by government securities.
Use Cases for the Trial
ANZ is leading the testing of a use case for tokenized trade payables, which aims to address the challenges of working capital and cash flow faced by suppliers. The bank will also conduct a tokenized fixed-income use case exploring a wholesale CBDC as a tokenized money to facilitate risk-free credit and liquidity settlement.
Regulatory Approval
Australia’s markets regulator, the Australian Securities and Investments Commission (ASIC), has given participants a reprieve from some regulations so they can trial assets that currently sit outside the law. ASIC Commissioner Kate O’Rourke stated that the agency sees useful applications for the technologies underlying digital assets in wholesale markets.
Current State of Crypto Regulation in Australia
Under its ruling center-left Labor Party, Australia’s government proposed a new crypto framework regulating exchanges under existing financial services laws in March. The government has also promised to work with Australia’s four largest banks to better understand the extent and nature of de-banking. In August 2022, the government initiated a series of industry consultations to draft a crypto regulatory framework.
Conclusion
The RBA’s trial is an important step in exploring the potential of digital currencies in Australia. With the participation of major banks and the approval of regulators, the trial is expected to provide valuable insights into the use of digital currencies in wholesale financial markets. The results of the trial, which is expected to take six months, will be published in the first quarter of 2026. As Australia continues to develop its crypto regulatory framework, the country is poised to become a leader in the adoption of digital currencies.
