At the annual Intersekt Conference in Melbourne, Brad Jones, Assistant Governor of the Reserve Bank of Australia (RBA), made a key announcement that could shape the future of Australia’s financial system. Jones revealed that the public phase of Project Acacia—an initiative to explore the potential of wholesale central bank digital currency (CBDC)—will be launched later this year. With industry engagement slated to begin in October, this marks a major step in the RBA’s broader strategy to modernise Australia’s monetary landscape through digital innovation.
Jones was clear that Project Acacia sits at the heart of the RBA’s roadmap for the future of digital money in Australia. “Project Acacia aims to build on the lessons from our CBDC pilot last year by focusing on opportunities to uplift the efficiency, transparency, and resilience of wholesale markets through tokenised money and new settlement infrastructure,” Jones explained. He called on industry players to engage actively in the upcoming phase, positioning Project Acacia as a key driver of innovation in Australia’s financial markets.
The initiative will explore how tokenised money and ledger-based transactions can transform wholesale markets, with concepts like ‘atomic settlement’ and ‘programmability’ taking centre stage. As Jones put it, “We don’t have all the answers here, so we look forward to engaging with industry partners who have an ability and appetite to innovate with the national interest in mind.”
A Shift in Focus: Wholesale CBDC Over Retail
Jones’s speech was packed with insights, but the cornerstone of his address was the RBA’s decision to focus on wholesale rather than retail CBDC. With the endorsement of the Payments System Board, the RBA has determined that wholesale CBDC presents more promising benefits and fewer challenges for Australia’s economy than its retail counterpart.
“Wholesale CBDC would represent more an evolution than revolution in our monetary arrangements,” said Jones. He explained that wholesale CBDC could support systemically important markets, building on the stabilising role that central bank money already plays in these areas. In contrast, retail CBDC—designed for use among the general public—would bring about more disruptive changes with uncertain benefits, especially in a country like Australia, where digital payment systems are already robust.
Challenges of Retail CBDC: A Reality Check
Jones acknowledged the growing global interest in retail CBDC but maintained that the potential benefits for Australia are modest or uncertain at best. “Our assessment is that the potential benefits of a retail CBDC generally appear modest or uncertain at the present time, relative to the challenges it would introduce,” he said. He elaborated that arguments in favour of retail CBDCs, such as financial inclusion and monetary sovereignty, are less relevant in Australia’s stable financial environment.
He further noted, “If a public policy case ever emerged in favour of issuing a retail CBDC, the Australian Government would be the ultimate decision authority and it would almost certainly require legislative change.” For now, the RBA will continue to evaluate the evolving landscape of retail digital currencies while maintaining its priority on wholesale solutions.
Why Project Acacia Matters
The decision to peg Australia’s digital money future to wholesale CBDC through Project Acacia reflects a broader trend among central banks globally. Wholesale CBDC, unlike retail, would not disrupt the existing two-tier monetary system, where commercial banks play a crucial role in providing customer-facing services. Instead, it offers a way to enhance the efficiency of large-scale transactions between financial institutions.
Jones noted that Australia’s wholesale financial markets, despite their scale, are still reliant on outdated processes. “It is striking that price discovery and placement in the $780 billion market for bank term deposits still largely occurs in branches and over emailed spreadsheets and phone calls,” he remarked. Project Acacia is aimed at modernising this landscape, with the RBA betting that the tokenisation of assets and new settlement infrastructure can unlock substantial efficiencies.
The RBA’s commitment to innovation doesn’t end with Project Acacia. Jones also announced plans to establish industry and academic CBDC advisory forums in 2025. These forums will provide a structured platform for ongoing dialogue between key stakeholders in Australia’s financial system. According to Jones, “We have benefited significantly from engagement with industry and the academic community on various CBDC issues over recent years, and we now seek to put more structure around this dialogue.”
In addition to Project Acacia, the RBA will also be exploring regulatory sandbox reforms to support financial innovation, particularly in digital money and infrastructure. The government is expected to work closely with the RBA and Treasury to implement the recommendations from an independent review into the existing sandbox framework, ensuring Australia remains a fertile ground for fintech growth.
Wholesale CBDC: The Evolutionary Step
Wholesale CBDC represents a natural evolution for Australia’s financial system, Jones argued, because central banks already have experience issuing digital money to financial institutions. The innovation, however, lies in how this digital money will be used. “A wholesale CBDC would be issued to eligible financial institutions and serve as the ultimate safe asset in the settlement of wholesale market transactions,” Jones explained.
He also noted the potential benefits of tokenisation in wholesale markets, including increased liquidity, transparency, and reduced intermediary costs. “Programmability could cut through layers of manual processes in the transaction lifecycle,” Jones added, alluding to the possibilities offered by blockchain and smart contracts.
A Cautious Approach to Retail CBDC
While the RBA is keen to explore wholesale CBDC, Jones reiterated that retail CBDC remains a more distant prospect. He outlined several concerns, from the risk of bank runs to higher borrowing costs for Australians, should a retail CBDC be introduced. “In times of stress, access to a risk-free CBDC would increase the ability of panicked households to switch out of bank deposits en masse,” he warned, highlighting the lessons learned from recent global banking crises.
Jones left no doubt that the RBA will continue to assess the merits of retail CBDC, but for now, the wholesale variant is where the focus lies. By prioritising wholesale CBDC and working closely with industry stakeholders, the RBA aims to modernise the country’s financial infrastructure without destabilising its existing system. As Jones summarised, “The question of how we might arrange our monetary system to better support the Australian economy in the digital age is a strategic priority for the RBA.” With Project Acacia poised to take centre stage, the future of CBDC in Australia looks evolutionary rather than revolutionary, but no less impactful.
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🚨 Big news from #Intersekt! Brad Jones just announced Project Acacia 🌐💰— @RBAinfo ’s next step towards transforming wholesale markets with digital money. Industry engagement kicks off in October! 📅 #CBDC #Fintech #RBA #ProjectAcacia #intersekt2024 @https://t.co/6rcZPjBWst pic.twitter.com/gvl3rV30wU
— The Indian Sun (@The_Indian_Sun) September 18, 2024
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