The Reserve Bank of Australia is seeking feedback on CBDC pilot program use cases.

The Reserve Bank of Australia (RBA) is looking for feedback on the use cases and features of a central bank digital currency (CBDC). It released a white paper this week about a multi-year pilot program that will include a CBDC test in the real world. The goal of the program is to “understand the role of value transfer in emerging digital economies.”

The pilot is being run by the RBA in collaboration with the Digital Finance Cooperative Research Centre (DFCRC). The DFCRC is a government programme that involves the government, the financial industry, regulatory bodies, and universities in a research programme that lasts for ten years.

The DFCRC seeks opportunities in “universal digitization of all assets, so they can be traded and exchanged directly and in real-time between any individual or organisation.” Participants may also argue for the inclusion of their use-case in any real-world pilot test.

Another key goal is to determine whether CBDCs provide enough benefit (at least to the Australian economy) to justify their existence, given the time and costs involved in implementing a radical new financial system. The new white paper will also look into the potential role of “appropriately regulated privately issued stablecoins” in facilitating transactions in a tokenized economy.

nChain, a BSV blockchain development firm, has also been involved in developing CBDC scenarios and designing potential infrastructure. It published a CBDC Playbook outlining its arguments in August 2022:

Other central banks are also looking into the idea. The Bank of England will publish a paper on it in March 2020, and the People’s Bank of China is already running pilot tests with its “digital yuan” in the real world.

What exactly is a CBDC, and why is it being discussed?

What is the distinction between a CBDC and a digital counterpart to today’s national fiat currencies? There isn’t much for the average user or consumer. The main difference is in management—central banks would no longer rely on commercial banks and clearing houses for transactions, reducing system complexity and costs overall. It’s like when wholesalers sell products directly to the public instead of sending them to retail stores.

In addition, there would be a more central record of all transactions and more efficient tracking of the overall money supply. Instead of relying on indirect monetary levers such as quantitative easing and interest rates, central banks could directly control the amount of money in the system. Some see financial inclusion benefits because the central bank could provide anyone with a free digital account and possibly even load it with “helicopter money” if such a practise becomes politically acceptable.

While CBDCs are frequently attributed to Bitcoin and other blockchains, there are examples of test programmes in Europe dating back to the 1990s and early 2000s. In fact, many people believe that CBDCs do not need blockchain technology at all because a central bank can rely on a closed system with complete control over its functions.

One major issue confronting the CBDC concept is trust, particularly public scepticism about giving central bank policymakers more control and efficiently tracking all transactions. People worry that efforts to fight serious crime and tax evasion could easily lead to total control over spending and private bank accounts. This could eventually lead to the loss of freedoms by putting direct financial restrictions on any person or company that the government thinks isn’t cooperating.

If CBDCs are unavoidable, trust is the reason why it is preferable to run them on a public and open blockchain rather than a private network. According to the ebook, a traditional private database “can be easily manipulated” by malicious actors, and “immutability is critical for a CBDC.” A central bank could keep full control over its CBDC’s supply and policies, and there would be permanent, time-stamped records of any changes.

Another benefit of using the BSV blockchain is that the infrastructure is already in place, and the basic protocol rules cannot be changed. The public must continue to trust policymakers, but this is already the case in today’s monetary systems.