Sebastian Sinclair

Brad Jones, the assistant governor of the Reserve Bank of Australia, outlined the potential benefits of adopting tokenization of domestic markets during a weekend speech.



Speaking at the Australian Financial Review Cryptocurrency Summit on Sunday, Jones emphasized the possibilities of integrating tokenization into Australia&#8217;s financial infrastructure.



&#8220;The first set of estimates points to hypothetical transaction cost savings in Australian financial markets in the range of $1 – 4 billion AUS [$631 million – $2.52 billion] per year,&#8221; Jones said.&nbsp;



Jones cited potential savings that could rise to as much as $13 billion AUS [$8.2 billion] per year for issuers, based on assumptions including “reduced liquidity premia” and lowered costs of the new issuance of financial instruments.



However, Jones cautioned that the figures are &#8220;not forecasts&#8221; but rather hypothetical scenarios grounded by certain assumptions.&nbsp;



&#8220;Ultimately, it won’t be possible to make concrete statements about the effects of asset tokenization&#8230;until the ecosystem is better developed,&#8221; he said.



Read more: <a href="https://blockworks.co/news/bis-cbdc-legal-framework-monetary-system">Legal frameworks ‘must keep up’ for CBDC implementation: BIS</a>



Jones outlined multiple candidates for tokenized money, including unbacked cryptocurrencies, asset-backed stablecoins and tokenized bank deposits. He suggested that the adoption of a wholesale central bank digital currency (<a href="https://blockworks.co/tag/cbdc">CBDC</a>) could be the most stable and risk-free option.



&#8220;Of the various forms of tokenized money under consideration, <a href="https://blockworks.co/news/bis-cbdc-project-mariana-concludes">only a wholesale CBDC</a> would be completely free of credit and liquidity risk,&#8221; Jones said.



Australia is currently exploring the possibility of retail CBDCs, which differ from wholesale CBDCs, with the central bank <a href="https://blockworks.co/news/stablecoins-prominent-role-economy-australia">conducting research to explore their feasibility</a> and potential to reduce capital friction.



The bank initiated a <a href="https://blockworks.co/news/rba-to-explore-cbdc-use-cases-in-australia-via-research-pilot">sandbox exploration of potential CBDC applications</a> in August.



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Australian markets could see billions in savings via tokenization: RBA

<div id="highlights-block_62f1b0aa6d69c" class="highlights">
 <ul>
 <li>The pilot project is expected to take one year and will invite industry participants to develop specific use cases</li>
 <li>Australia will join a growing list of other countries exploring CBDCs at the pilot stage following the project&#8217;s completion</li>
 </ul>
 
</div>



The Reserve Bank of Australia (RBA) said Monday it has teamed up with the Digital Finance Cooperative Research Centre (DFCRC) to begin exploring use cases for a retail central bank digital currency (CBDC).



Both parties will embark on a year-long research project encompassing the development of a &#8220;limited-scale&#8221; CBDC operating in a ring-fenced sandbox, according to a <a href="https://www.rba.gov.au/media-releases/2022/mr-22-23.html" target="_blank" rel="noreferrer noopener">statement</a>.



While extensive research has already been conducted on the viability of digital ledger technology in the country, the RBA and DFCRC said their project would further close knowledge gaps by exploring potential economic benefits.



DFCRC is a 10-year, 180 million australian dollar ($125.6 million) research program funded by the Australian Government, industry partners and universities via the country&#8217;s<a href="https://cooperativeresearch.org.au/cooperative-research/crc-program-australian-government/"> Cooperative Research Centres Program</a>.



Dr Andreas Furche, CEO of the DFCRC, said in a statement: &#8220;CBDC is no longer a question of technological feasibility. The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximise those benefits.&#8221;



Australia&#8217;s digital dollar project, if it makes it past the research phase, would join a growing list of other countries running pilots, including France, China, Canada, South Africa and Ghana. 



Live CBDCs are rarer, with only The Bahamas&#8217; Sand Dollar and Jamaica&#8217;s JAM-DEX fully launched, according to <a href="https://cbdctracker.org/" target="_blank" rel="noreferrer noopener">CBDCTracker.org</a>.



For now, the project hopes to further understand some of the technological, legal and regulatory considerations associated with an Australian digital dollar while gauging demand.



A specific launch date for the project was not given. A spokesperson for the bank declined to comment and DFCRC did not immediately return requests for comment.



Interested industry participants will be invited to develop specific use cases showcasing how a CBDC could add value to payment and settlement services for both households and businesses, per the statement.



The RBA and the DFCRC will choose use cases to include in the potential CBDC pilot, the pair said.



The project&#8217;s findings on the viability and assessment of various use cases developed are to be compiled in a report to be published once the year is up.



A separate report is expected to be published in the &#8220;next few months&#8221; detailing the project&#8217;s objectives and approach in greater detail with further information on how industry participants will be able to engage, the pair said.



This article was updated at 4:31 am, ET with context throughout.



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Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



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