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The Reserve Bank of Australia (RBA) has opened submissions for the second phase of Project Acacia, its ongoing study of digital money and its potential role in wholesale tokenised asset markets.
In partnership with the Digital Finance Cooperative Research Centre (DFCRC), the second phase of Project Acacia is set to commence in 2025, following the RBA’s selection of research proposals from industry.
The purpose of Project Acacia is to explore the role that central bank-issued and privately issued forms of digital money could play in supporting the development of wholesale tokenised asset markets.
A key research question, according to the RBA, is whether there might be a need for a new form of tokenised central bank money in the form of a wholesale central bank digital currency (CBDC).
The RBA is eager to understand whether a wholesale CBDC could “maximise” the benefits of asset tokenisation, or whether enhancements to the RBA’s existing infrastructure offer a safer alternative.
For example, exchange settlement accounts (ESA) could potentially support tokenised settlements without the need for a wholesale CBDC, if complemented by privately-issued tokenised money such as bank deposit tokens.
A related question is whether, to facilitate tokenisation, access to wholesale central bank money would need to be expanded beyond institutions currently eligible to hold an ESA and, if so, what policy and operational questions that expansion might pose.
Brad Jones, assistant governor (financial system) at the RBA, said that shaping the future of money and exploring tokenisation is a “strategic priority” for the RBA and its Payments System Board.
“The role that tokenised asset markets could play in improving the efficiency and resilience of wholesale payments and settlements, and in enhancing cross-border payments, are areas of particular interest,” he said.
“Our overarching aim here is to help address the larger question of how innovation in our financial system can best support the Australian economy in the digital age.”
Based on earlier periods of technological innovation, the RBA believes that the potential cost savings from tokenisation in Australia’s financial markets could be in the range of A$1bn (US$660m) to A$4bn (US$2.6bn) per year.
Stakeholders have until December 11, 2024 to respond to the consultation and register their interest in participating in the experimental research phase of Project Acacia.
Shift in focus to wholesale use cases for CBDC
The RBA said that Project Acacia’s focus on wholesale markets and settlements reflects its strategic commitment to prioritise research of wholesale digital money and infrastructure, including wholesale CBDC.
In September, the RBA and Treasury spelled out this commitment in a joint paper on CBDC, in which the two agencies said they see “no clear public interest case” in issuing retail CBDC at present.
According to a roadmap of CBDC research, the two agencies will revisit the issue of retail CBDC in 2027, with the benefit of having observed developments and issuances in other jurisdictions.
For now, the country’s focus remains on wholesale CBDC and its potential benefits in tokenised asset markets.
Likely Phase 2 experiments
During Phase 2 of Project Acacia, the RBA and the DFCRC will partner with industry stakeholders to develop and test prototypes of one or more models for settlement in wholesale tokenised asset markets.
Depending on the settlement model(s) selected for exploration, this may involve the use of the RBA’s existing settlement infrastructure, or the issuance by the RBA of a pilot wholesale CBDC.
Each of these models could also include the use of private-sector tokens or other forms of tokenised money.
Subject to appropriate vetting and controls, the RBA said it is “open” to testing issuance of pilot CBDC directly on one or more third-party tokenised asset platforms.
“This would provide an opportunity to explore the benefits and challenges associated with this kind of deployment model,” said the RBA.
“However, it should not be assumed from this that the RBA is predisposed to this kind of deployment model, which would represent a significant departure from the current centralised model for central bank settlement infrastructure.”
It would also contrast with a previous CBDC pilot, conducted during 2022 and 2023, when a test CBDC platform controlled by the RBA was used exclusively.
The aim of Phase 2 will be to explore issues of technology design, risk management, governance and regulation associated with different settlement models for wholesale tokenised asset markets.
It will also provide an opportunity to explore some of the technical, policy, legal and regulatory considerations associated with different forms of tokenised money, said the RBA.
