The RBA does not believe there is currently a strong policy case for issuing a CBDC in Australia, pointing to the success of the country’s efficient, real-time New Payments Platform.
Moreover, while the use of cash for transactions is broadly declining, Australians are not relinquishing banknotes as quickly as other citizens, as for example, are the Swedes.
Amid the COVID-19 pandemic, demand for cash actually saw a significant uptick, the paper stated. RBA has therefore pledged to continue to provide access to banknotes “for as long as Australians wish to keep using them.”
The Bank of Canada, meanwhile, has been readying itself for the potential issuance of a retail CBDC as and when it becomes desirable. Canada envisages two scenarios in which CBDC issuance could become advantageous — a collapse in cash use for everyday transactions, or threats to monetary policy from the circulation of a private-sector digital currency.
For its part, the RBA stressed the uncertain horizon for prospective currencies such as Facebook’s Libra, noting that it remains to be seen whether the currency will “gain regulatory approval and become operational.”
As for China, the RBA has speculated that the impetus behind the country’s already-advanced CBDC is tied to the domestic prevalence of private-sector e-money wallet providers, such as Alipay and WeChat Pay.
In the RBA’s view, a CBDC could have significant downsides for the country, including higher funding costs for commercial banks.
Currently, banks source roughly 60% of their funding from deposits, two-thirds of which comes from at-call deposits. Loss of deposit funding could push commercial banks to rely on funding from equity and capital markets to a greater extent. The paper noted:
“The loss of deposit funding and greater reliance on other funding sources could result in some increase in banks’ cost of funds and result in a reduction in the size of their balance sheets and in the amount of financial intermediation.”
Moreover, a CBDC could increase the likelihood of a run on the banking system in case of financial stress. RBA claimed that “in the presence of a CBDC, a run on the banking system as a whole would become feasible; if depositors had concerns about the entire financial system, they could seek to make large-scale transfers of commercial bank deposits into CBDC.”
This threat would be mitigated, however, by the existing protection offered by Australia’s financial claims scheme for household deposits, the RBA admitted.