Australia drew one step closer Wednesday to potentially establishing a central bank digital currency (CBDC), as the Reserve Bank of Australia (RBA) announced an upcoming pilot phase for its digital version of the Australian dollar called the eAUD.
In a joint announcement with Australia’s Digital Finance Cooperative Research Centre, the RBA says it invited a small number of companies to help explore 14 use cases for the eAUD, asking firms like ANZ and Mastercard to participate in the program. The use cases range from facilitating offline payments to tokenized invoices for businesses, and even livestock auctions.
“The pilot and broader research study that will be conducted in parallel will serve two ends—it will contribute to hands-on learning by industry, and it will add to policymakers’ understanding of how a CBDC could potentially benefit the Australian financial system and economy,” the RBA’s Assistant Governor Brad Jones stated.
Another company included in the announcement was Canvas Digital, a layer-2 network built on top of Ethereum that uses zero-knowledge rollups to facilitate transactions. The network was built in conjunction with the Israli-based firm StarkWare, and by using Circle’s USDC stablecoin and the eAUD, Canvas has been invited to pilot the settlement of foreign exchange transactions.
“We see that there are huge benefits in using CBDCs and digital currencies like USDC in foreign exchange trading and international remittances,” Canvas Digital co-founder and CEO David Lavecky told Decrypt.
Zero-knowledge rollups or zk-rollups are a method for increasing the efficiency of an underlying network, in this case Ethereum, reducing settlement times and transaction costs by processing transactions on a separate blockchain and then bundling them together before they are sent back to the underlying network. The technology uses zero-knowledge proofs, a concept in cryptography that allows transactions to be verified without disclosing the details associated with them.
This enables financial institutions to maintain the level of privacy that they currently have when conducting sales on foreign exchange markets, betting on the direction of nations’ currencies as they fluctuate in value.
“When you are doing a foreign currency trade, it’s not visible on Etherscan […] for everyone,” Lavecky said, referencing the blockchain explorer that’s used for analyzing data on Ethereum. “So, you get all the benefits of a public blockchain and none of the drawbacks around privacy.”
StarkWare co-founder and President Eli Ben-Sasson told Decrypt that piloting the use cases outlined in the RBA’s announcement could “show people new digital currencies aren’t empty hype” and have functions that fit into people’s normal lives.
“Just a few years ago, the idea of rollups was highly theoretical; now they’re playing a part in projects like this,” Ben-Sasson said. “These are exciting times.”
CBDCs are similar to stablecoins in the sense that they are digital currencies that are pegged to the price of a fiat currency, such as the U.S. dollar. However, instead of being maintained by private companies that issue tokens on decentralized networks, CBDCs are fully backed and maintained by their respective governments.
Over 10 countries have launched a CBDC so far, and 89 countries are either piloting, developing, or researching a CBDC, according to the American think tank Atlantic Council’s website. Last month, Japan announced it will launch a CBDC pilot program in April.
Jones commented about the increased pressure countries have faced within the past two years to establish a CBDC, including the U.S., as countries like China hone the technology and steadily roll it out.
“I have absolutely detected a shift in the last 18 months or so, growing support—particularly in Congress—behind the idea that the primacy of the U.S. dollar and its role in the international financial system could be at risk if all the others race ahead and the U.S. sits behind,” he said in a speech published Wednesday on the RBA’s website.
Jones pointed out that CBDCs have the capacity to make payments across borders more efficient, reducing the costs associated with transactions and increasing the speed at which they can be settled.
“It still costs, on average, around 5% to send your money abroad [in Australia], and those transactions can take up to a couple of days to settle, which is clearly unsatisfactory,” Jones said.