The Reserve Bank of Australia published a report about Project Atom, a research project exploring the viability of a central bank digital currency.
What is Project Atom?
While cryptocurrencies continue their inevitable march into the mainstream, quietly (and sometimes not so quietly) in the background, CBDCs are becoming just as widespread. Seen by central banks as a deterrent for citizens not to get into crypto, advocates of cryptocurrencies oscillate between skeptical and horrified when it comes to CBDCs. But they’re coming, and, in fact, they are already here, as the examples of Nigeria and countless other countries show.
Australia has thus far not fully committed to a CBDC, although plans to implement a CBDC in Australia certainly exist. However; the publication of Project Atom, a feasibility study of CBDCs in Australia makes it pretty obvious: it’s coming and possibly sooner than we think.
Project Atom was undertaken by the Reserve Bank of Australia, the Commonwealth Bank of Australia, the National Australia Bank, Perpetual, and ConsenSys. The project developed a proof-of-concept for a tokenised CBDC based on an Ethereum-based blockchain. Potential use cases and their implications were:
- How to get a tokenised CBDC into the hands of everyone, not just commercial banks.
- Benefits of integrating such a currency with a digital asset in the form of a tokenised syndicated loan on a blockchain.
- How an enterprise-grade version of Ethereum (read: a private sidechain) could deal with the limitations of the Ethereum mainnet. In other words, how to deploy a CBDC on a governmental sidechain without gas fees or congestion.
What Project Atom found
The study explicitly looked into the issuance of a digital government coin from central banks to commercial banks and then to consumers. That way, banks would still fulfil their current role of onboarding consumers to the financial system and dealing with customer service.
However, the study also mentioned that several policy issues would need to be resolved:
- Who would be eligible to access such a currency?
- How could be used?
- What would be the relationship between commercial banks and their sponsored participants?
- What would be the implications of commercial bank deposits migrating to a CBDC for financial stability?
The study concluded that “significant efficiency gains” could be attained with the digitalisation of paper-based processes. Moreover, a tokenised central bank coin would allow for the automatic execution and settlement of more complex multi-stake and multi-party transactions. In other words, complex transactions involving several parties would be significantly easier to conduct. More research would need to be done on such a solution’s efficiency, security, and privacy and whether such a concept could be executed in practice.
Cryptocurrency enthusiasts will be less than thrilled reading this, as it pretty much foretells that a CBDC will eventually come as soon as the technology is found to be working. However, that may not be all that bad, as facing competition by the public sector could spur private currencies into the kind of efficiency gains the cryptocurrency space is desperate for.