Transcript of Question & Answer Session A Tokenised Future for the Australian Financial System?

So those cost savings that you’ve disclosed, I think, for the first time today, $13 billion potential cost savings for deploying tokenised assets into the financial markets, and there was another slide there where you were showing a $1–4 billion a year potential cost saving as it relates to reducing bid spreads. Now, you made it very clear this is very early days, which means there is a lot more work to realise, you know, whether or not those cost savings are going to be accurate. But it’s quite a large number. And you’ve also talked about quite a few risks that need to be counterbalanced against those, such as, pulling apart the pools of liquidity and interoperability of systems and a range of stuff that you’re working through. But when you see potential cost savings of $13 billion a year to the financial sector, does that sort of strike you as a number worth going for? Do you sort of feel at this stage that those savings are of such a quantity that the work that still needs to be done to get there is worth pursuing in quite a determined fashion?

The threshold policy question that we need to answer as a country is: are the benefits of what we’re talking about here going to be significant enough, potentially significant enough, to warrant all the disruption that it would entail? I wouldn’t get too hung up on the precise numbers mentioned today. They were really just the results of a hypothetical exercise where we went back and had a look at what the transition to electronic trading did for markets, in terms of traded volumes, bid-ask spreads, lowering the cost of capital, and we said: ‘Right, just as a hypothetical scenario, let’s assume just a small fraction of the benefits that we observe with the transition to electronic trading were to flow from the move to tokenised asset markets. So if we take those ranges and apply them to the data we have today on outstanding issuance in Australia in traded volumes, let’s just see …. combine those two bits of data together to give us a sense of what we could be talking about.’

The numbers seem sufficiently large to us that, at a minimum, it’s worthy of further investigation, and that’s why, as I said, the Bank and a number of our research partners are actively looking at this space and doing a lot of related work.

Another part of your speech that just jumped out at me as I was listening to it was the history of private money that obviously has had its issues. You mentioned the Wild Cats in the US in the 19th century. You spoke about the two-tiered monetary system developing sort of on the back of that where the RBA acts as an anchor and a trust and also as an enabler. And then you said it would probably be to the benefit of the system, as we think about stablecoins, for them to be issued by regulated banks rather than non-banks and rather than big technology companies. So are we right in thinking about that the Reserve Bank and, more broadly, Australia is probably quite wary of big tech coming in with equivalents to say the USDC that is issued by Circle in the United States, or even Facebook had a go at this kind of thing with Libra a few years earlier – that’s not the way we should go here? It feels like stablecoins issued by the large four banks, which can be regulated like bank deposits, is the way that you see the market developing, and then tokenised bank deposits coming in as an addendum or in parallel, or it’s quite sort of similar structure to that. You’d prefer to see stablecoins issued by the major banks and not non-banks and not technology companies?

The most important thing with stablecoin issuance is that that issuance takes place sort of within the regulatory perimeter. Now, how that perimeter is redesigned for stablecoin issuance and other forms of tokenised money is a very active issue. Treasury has a licensing paper out issued in June, which spoke about the case for stablecoins being issued basically as a stored value facility, and we’re very much supportive of that.

I don’t want to give the sense that only the big four banks can operate in that space. It’s more important that the regulatory regimes in place so that people’s money is safe, the payment instrument is safe, it’s credible, it’s backed by real assets or at least it’s governed by prudential regulatory framework, because we know from history that unbacked … private money that’s not backed, not appropriately backed, or that where issuance has taken place outside the regulatory perimeter, has really struggled to build the trust that’s needed to ensure that it trades at par with central bank money and won’t be discounted when it’s used to trade in for goods and services. That’s really the key point. So I wouldn’t get so hung up on the big four piece. It’s more the overarching … there needs to be an overarching framework, though.

Thanks for that clarification. There was a question in the middle of the room here. If we could just get the microphone over to you, Sir. It’s just on its way just so we can hear it on the webcast.

In your work that you’ve done, did you look at a CBDC potentially crowding out private money? Did you see any danger of ability of deposits that banks use, banks in general use, to create private money? People currently don’t have access to leave their money with the Reserve Bank but a CBDC would potentially allow that. Did you see that in your work?

Thanks for the question, Drew. That is a material issue that we are very cognisant of if the bank were ever to issue a retail CBDC. I gave a speech about a year ago which actually set out some of the thinking around those issues, and they are material. They are one of the factors that would have to be very carefully weighed if the Bank were ever to go down the road of issuing a CBDC. And you see central banks that are seen quite likely to go down the road of issuing a retail CBDC putting in place safeguards principally in the form of caps around how much CBDC could be held by individuals. Now, the Bank currently is not of a mind where retail CBDC is high on our agenda. We’ve had a look at it. We’re keeping an open mind. But at the moment, our overarching framework is we see more potential benefits on the wholesale CBDC side, and less risk of some of the negative externalities, if you like, such as those you just spoke to, compared to a retail CBDC. So the cost-benefit analysis at the moment has us focusing more of our efforts on the wholesale CBDC side than on the retail. We’re keeping an open mind but at the moment the wholesale CBDC side is really where we’re focusing our resources.