The Reserve Bank of Australia (RBA) has launched a consultation on wholesale CBDC and asset tokenization with the Digital Finance Cooperative Research Centre (DFCRC), with a deadline for responses of December 11. It is inviting industry members to provide feedback and take part in trials for wholesale tokenization use cases in 2025 as part of Project Acacia. They may also want to join the industry advisory group.
Apart from a wholesale CBDC, Project Acacia will explore the use of private forms of digital money, including tokenized deposits.
Previous RBA and DFCRC CBDC experiments covered both wholesale and retail CBDC where the CBDC was issued on a central bank controlled infrastructure. In the latest trials, the central bank will consider issuing a pilot wCBDC onto third party blockchain networks, in a similar manner to Switzerland’s Project Helvetia.
RBA assistant Governor Brad Jones said the aim is to “examine how innovation in wholesale markets could be enabled by new forms of digital money and supporting infrastructure. 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.”
However, the current phase of Project Acacia will focus on domestic wholesale settlement.
Settlement options with digital money
The two organizations have already completed the first phase of Project Acacia, which involved desktop research regarding different settlement options.
It considered five different forms of settlement assets, including
- existing central bank money (Exchange Settlement Accounts or ESAs)
- wholesale CBDC (wCBDC)
- deposit tokens
- reserve-backed digital currency (RBDC) and
- fiat-backed stablecoins.
Deposit tokens are tokenized versions of commercial bank money. RBDC is tokenized money backed by a pooled or omnibus central bank account (similar to Fnality).
A key feature of tokenized deposits is they involve two steps because the seller (recipient) may not bank at the same bank as the buyer (payer). Hence, there’s a transfer of the bank token from buyer to seller and then the two banks need to settle up with each other. The RBA referred to this settling up process as the interchange mechanism.
Hence, in reviewing settlement options it considered whether the settlement asset is on the same platform or not, the different types of settlement assets, and the interchange mechanism. If the settlement asset is on a separate platform there’s a need for synchronization to ensure the transaction status on the tokenized money DLT matches the tokenized asset platform.
This synchronization without a wCBDC is similar to the European Central Bank wholesale DLT experiments with Germany’s Trigger solution and Italy’s TIPS Hashlink offering. The RBA gave the nod to the Bank of England’s ‘synchronisation’ capability as part of its RTGS renewal program.
Five potential settlement models were selected from the research, involving tokenized deposits and / or wCBDC. Stablecoins are not included. There is no intention to select just one model, because the RBA and DFCRC believe different models will be suitable for different markets.
Digital currency and wCBDC trade offs
The research highlighted some of the tradeoffs with different models. For example, if a wCBDC is issued onto a third party platform, it can support atomic settlement and composability, which could offer economic benefits such as efficiencies, risk reduction and new business models. However, that would require the central bank to change its role to just being the issuer, reducing its ability to manage and monitor balances.
Alternatively, using existing central bank reserves for settlement would involve more incremental changes for both the central bank and market participants. However, it would forego some of the economic benefits of atomic settlement and composability. The central bank is keen to understand these tradeoffs in greater detail.
Meanwhile, Project Acacia will also involve three other agencies, the Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the Treasury. The project may trigger potential regulatory changes which could be tests as part of ASIC’s sandbox framework.
Several digital money architecture topics are explored as part of Ledger Insight Research’s report on bank stablecoins, tokenized deposits and DLT payments.
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