Australia joins the CBDC adventure

The Australian Central Bank is considering launching a CBDC, with a pilot version potentially available as early as next year. The banking institution has released a white paper that explains how its digital currency will be developed and how it could be used. Australia joins the list of countries ready to launch a central bank digital currency.

Australia releases whitepaper for its CBDC

In a joint release, the Reserve Bank of Australia and the Digital Finance Cooperative Research Center (DFCRC) announced the release of the Australian Central Bank Digital Curreny (CBDC) Whitepaper. This whitepaper details how the CBDC project could be implemented on the ground.

In particular, it explains how the Reserve Bank of Australia and the Digital Finance Cooperative Research Center (DFCRC) will support the deployment of the country’s digital currency. It is stated that the Reserve Bank of Australia will be responsible for the issuance and redemption of the CBDC as well as other oversight and regulatory functions.

The Digital Finance Cooperative Research Center (DFCRC) will oversee the development and installation of the eAUD platform. Although the white paper touts the CBDC “new features to save and transact quickly and cheaply,” there is no clear indication of when the project will actually launch.

However, it is indicated that a pilot version could be implemented next year. The Australian central bank has said it is open to suggestions from crypto industry players.

Does the Reserve Bank of Australia mean well for the people?

The release of Australia’s CBDC white paper expands the list of countries considering launching a central bank digital currency. As of December 2021, sources reported over 60 countries developing a CBDC project. Nearly nine months later, that number has likely been surpassed.

But, as some experts at the International Monetary Fund have mentioned, putting a CBDC into circulation requires a few prior agreements. These include improving access to digital infrastructure such as Internet connectivity, strengthening cyber security and preserving the financial integrity of the issuing country.

While these prerequisites are not major challenges for developed countries like Australia, this is not the case for some developing countries. The most telling case is Nigeria. The country launched its CBDC in November 2021, with the promise of facilitating financial inclusion and blocking the road to cryptocurrency adoption.

But about 10 months after it went live, the app giving access to eNaira had only been downloaded 840,000 times, according to Bloomberg. This suggests that less than a million people, or nearly 1% of the country’s adult population, use the Nigerian CBDC. Yet they are nearly 33.4 million Nigerian adults, or 35% of the country’s adult population, who hold the cryptocurrency in the country.

The limitations of CBDCs in emerging countries

There are several reasons for the failure of the eNaira. Indeed, it is so far only available to Nigerians who already have a bank account. However, according to the International Monetary Fund, 38 million adults or 36% of the Nigerian population do not have access to a bank account.

This population is de facto excluded from the services offered by the country’s CBDC. Furthermore, only Nigerians with smartphones and access to internet connection can use the eNaira. This excludes millions of 2G phone users. Finally, like its paper counterpart, the Nigerian CBDC is exposed to inflation and therefore does not protect Nigerians’ savings from the collapse of the local currency.

In weak economies with limited access to technology, the CBDC only serves to bank the banked, leaving out the millions of citizens who do not have access to internet and a traditional bank account. Moreover, a CBDC does not solve the problem of inflation. Thus, such an initiative can in no way divert people from using cryptos.