Australia’s Central Bank Testing Ethereum-Based Interbank Settlement System Using CBDC
The Reserve Bank of Australia (RBA) — the country’s central bank says adoption of state-backed digital currency for interbank settlement could provide certain advantages like cost savings and better financial inclusion. Australia’s apex bank is the latest to trial a blockchain-based payment system as nations mull the possibility of developing their own central bank digital currencies (CBDCs).
RBA Admits CBDC Has Certain Advantages
According to Financial Review, the RBA has submitted a report to the country’s Senate detailing the results of a trial run on an Ethereum-based interbank settlement system. The test aimed to determine the effectiveness of CBDCs for settling account balances among financial institutions like commercial banks.
As part of the report, the RBA stated that adopting a central bank-backed digital token does present cost-saving advantages. Apart from reducing cost, the RBA reported that such a system could also improve the speed of interbank settlement, declaring:
“[A] fully integrated into a blockchain platform could enable payments to be made between participants in real time and 24/7 without relying on external payment systems.”
While banks currently adopt a cost-saving measure of settling net obligations at the end of each business day, the flip side results in transaction delays.
The RBA report also stated that a blockchain-based settlement system will foster greater financial inclusion. According to the RBA, the entry of fintech and big tech companies into the digital payment space is indicative of the huge potential in opening up the global financial system.
However, Australia’s central bank included a caveat on adopting digital currency payment systems as they have the potential to disrupt the status quo of mainstream finance. Depending on the level of adoption, the RBA predicts that markets like mortgage and business loans could be affected.
Central Banks Developing Blockchain Upgrades for Financial Systems
The RBA’s report on the Ethereum-based interbank settlement trail run comes following the central bank’s warning against Facebook’s Libra. As previously reported by BTCManager, the RBA has reservations against the utility of the Libra project in the country.
Meanwhile, Australia’s testing of a blockchain-based payment system provides further proof of the growing pivot of central banks towards digital payment systems. Back in 2018, the South African Reserve Bank (SARB) conducted a pilot remittance test for an Ethereum-based interbank payment system.
China is also moving forward with the creation of a digital yuan with officials in the European Union (EU) calling on the European Central Bank (ECB) to consider launching a single digital currency for the zone to prevent China from gaining a foothold in the emerging digital economy.