Slow uptake for mortgages: RBA digital currency pilot

The recently released pilot report has shed light on the anticipated progression of adopting digital currency for mortgages, indicating a slower pace compared to other financial assets.

The project between the Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research was conducted to investigate potential use cases for a Central Bank Digital Currency (CBDC) in Australia.

CBDC refers to a new digital form of money, denominated in a national currency that would be issued by the central bank. It could be designed for use by households and firms for everyday payments, which could be likened to a digital version of banknotes.

Launched in August 2022, the project sought to showcase the potential role of CBDC in facilitating payments and settlement services for Australian households and businesses.

It revealed that while the move towards adopting digital currency in mortgages might be slower, the potential of CBDC in revolutionising financial systems and economies remains a promising avenue for exploration.

The report said that evolution with mortgages “would be slower given systems and market customs were already well established”.

Assistant governor (financial system) at RBA, Brad Jones, highlighted that the project revealed the potential benefits of CBDC and digital money innovations but also uncovered important legal, regulatory, technical, and operational challenges that require further research.

He said overall the study will deepen “our understanding of the role that tokenised asset markets and programmable payments could have in the Australian economy”.

The pilot program

The pilot program involved tokenising various assets like carbon credit units, biodiversity credits, debt securities, and invoices, with settlement taking place using the pilot CBDC.

This involved in-depth industry consultations, encompassing interviews with over 50 companies and government departments to gather insights on CBDC and its potential use cases.

The study showcased opportunities for CBDC to enhance the payments system through features like programmable payments, asset market settlements, and offline transactions.

Additionally, it outlined the possibility of CBDC supporting the development of privately issued digital money.

ANZ participated in the trial

ANZ actively took part in the trial, for participants without an exchange settlement account (ESA).

The major bank introduced a web portal enabling industry participants to request pilot CBDC by depositing Australian dollars into a designated ANZ bank account.

Subsequently, ANZ transferred the pilot CBDC to the buyer’s address on the pilot CBDC platform.

At the conclusion of the project, ANZ repurchased the pilot CBDC and redeemed it with the RBA.

Furthermore, RMIT University and Southern Cross University were both involved, alongside ANZ, with students conducting purchases at on-campus vendors, in an offline environment to test offline transactions.

[Related: Monetary sovereignty issue raised in CBDC roll-out]