Transcript of Question & Answer Session An eAUD?

Thank you very much, Governor. I think it was the top one with eight preferred endorsers. What will it take RBA to finally accept Bitcoin as an alternative regulated currency? As you know there are more than 1000 additional currencies around the world, 300 billion US dollars involved with that. Can a central banker deny this?

Well I can't deny they exist. But I do, as I said in my remarks, feel that many of these are a speculative mania rather than serving as a low cost-efficient form of payment. So I don't really understand the question, ‘What would it take for the RBA to accept Bitcoin?’ when we don't need to accept Bitcoin.

No, but when would it be accepted? Like you can pay a cup of coffee in a shop I mean …

Well you can do that now. But the truth is, when you look at the actual costs associated with making a payment in Bitcoin it costs more than the cup of coffee. So, if people in this audience want to use Bitcoin to make payments they're perfectly free to do that in this country. I suggest the cost of doing that is extraordinary, and do you really want to hold the value that you're using to make payments with in something when the price fluctuates 20 per cent in a day.

Right, actually, talking about coffee, I ordered coffee here in the hotel, five star hotel: expensive coffee. $17 for two cups of coffee, can you imagine? Great coffee by the way, but the lady said we have to add on 80 cents because you're paying with MasterCard.

I mean you might complain about 80 cents, but if you look at the cost of making the payment with Bitcoin you'd be complaining ten times as much.

Alright, questions from the floor - We have a mic here as well, for the Governor. No questions? Yes, there's a question over there. One moment, we'll get a mic. Please state your name.

In the hypothetical case where there was a replacement of Australian dollars with a crypto-currency, where all the Bitcoins were issued by the Reserve Bank. Do you see a future for banks in the role of credit creation?

There are two parts to that. When you talk about a crypto-currency, it would still be the Australian dollar. So, if the Reserve Bank was to issue an electronic form of currency, the currency would be the Australian dollar, and rather than just having physical pieces of paper, you might have tokens sitting in an app. So that would be the change. I don't think the case for that has yet been established. I don't think that would have implications for the credit creation part of the economy. It would be just replacing physical bank notes with tokens. Everything else in the monetary system could, in principle, work exactly the same. It would be very different if we started using alternative currency in this country. I don't think that's likely.

There's one more question at the back.

During your address you never mentioned the open banking API or basically third party access to banks. What is the Reserve Bank's view on that? What is your view of the timetable of when that might happen in Australia?

Well my view is that it's incredibly important. I mean open data … If I think about the things that can promote competition in the Australian financial system, open data is right at the top of the list and it would sit alongside a strong form of digital identity. I really see those two things as kind of going together. One without the other I don't think is going to work very effectively. So we need open data and a strong system of digital identity. The timeline, I'm not sure, it's largely up to people in this room and in our financial institutions.

But I would make the observation this is one area where Australia is slipping behind many other countries around the world and that's not good. We need to do something about it and it's like many issues in the payments system where coordination is really important. Because on both open data and digital identity I talk to a lot of people and someone has this way of wanting to do it, this way, or this (other) way. So you hear a thousand different ways and somehow we've got to find kind of a consensus, build a consensus. Hopefully with people in this room to move forward.

In other areas what the Payments System Board has been able to do is help the industry forge a consensus on important issues. I would prefer that we didn't have to do that, that the industry itself could build that consensus. If it turns out the industry is unable to do it, which would be regrettable, then the Payments System Board could consider a role in these areas.

Room for two more questions; I have a question in the corner there, Joyce, on the right.

This year and last year we've seen a lot about hacking and obviously as this technology gets going the criminality (within the cyber sphere as well) becomes more problematic. I'm wondering, are you suffering more attacks these days at the RBA or are you doing more with your security, are you more concerned with that, and just on the second question, while we are talking about the dollar, I'm just wondering if you've got any view on what it's likely to do next year as the US raises rates?

Well that's easy because my best forecast of the exchange rate is its current value. That's consistent with a whole lot of economic research over many decades and that remains my best forecast. No change.

On security it's like all financial institutions, we're spending a lot of money on security. We get, each day, thousands and thousands of emails trying to break through our systems. So, we have spent a lot of effort in trying to understand the threat landscape, building the firewalls and internal detection. It's an issue for us all and when we go through the strategic risks in our institution, cyber risks are right at the top of the pile.

Right, one last question.

My question is on the issue of having a digital fiat Australian dollar. I'm aware the technology is already in place, having a digital fiat currency issued by the central bank. I'm just wondering whether you are aware of that one?

Not of that specific example. It would behind of good to hear about that separately. I think it is technologically possible, it's just whether it's in the public interest to do that. The hypothesis that I was advancing is: with the Australian bank system having developed, with hopefully what are going to be very efficient low-cost payment methods, we won't need to develop a new electronic banknote. This is a really important issue. If the banking system does not offer low-cost payment methods, electronic payment methods, to all Australians, other people will come in and do it. So, I think this is going to be a challenge for us all over the coming years is: how can the financial and payments industry offer merchants low cost electronic payments? If they can't do that, other forms of electronic payment will emerge.

Market mechanism. Right?

So the idea that you can charge merchants at two or three per cent, for electronic payments, you might be able to do that today and it might be a great business model for financial institutions. I suspect some years down the track that model isn't going to work so well. Because what we see in other countries, if the financial institutions are either charging the customers or the business too much or not developing the system they need, there's enough innovation out there in the system that other people will come in and do that exactly that for them. The NPP is going to help on the consumers' side, but for many businesses the cost of the electronic payments is still too high and we need to address that.

Right, okay. Well thank you very much Dr Lowe. Please join me in thanking Dr Lowe.

Thank you very much.