Australian CBDC Could Divert Bank Deposits – APRA
(12 January 2022 – Australia) The Australian Prudential Regulation Authority (APRA) has raised concerns that a central bank digital currency (CBDC) could destabilise the financial system by encouraging depositors to hold digital cash directly with the Reserve Bank of Australia (RBA) instead of the traditional flow of funds to bank deposits.
APRA and the Council of Financial Regulators are investigating the risks of a CBDC which would create an electronic version of the Australian Dollar (eAUD) issued by the RBA. RBA governor Philip Lowe also expressed apprehension recently, stating the public policy case could emerge quickly for a CBDC which presented a risk to bank deposits. As a result he was conferring with other central bank heads into limits to cap the amount of funds that can be shifted into CBDCs during a crisis.
As work on central bank digital currencies (CBDCs) for wholesale or retail use gathers steam around the world, countries have to work together for CBDCs to improve cross-border payments according to a joint report to the G20 released by the Bank for International Settlements (BIS), International Monetary Fund (IMF) and World Bank
“APRA is yet to see the clear economic case for a CBDC, and it is worried about some customers bypassing banks, if they could hold digital cash in an RBA account. This could reduce the capacity of commercial banks to lend to support the economy” said APRA Chairman Wayne Byres.
“If the community embraces CBDCs then we need to think about the implications, the way a digital currency might be used can have very, very big implications for the structure of the rest of the financial system. If for example individuals were able to have their own accounts with the central bank, you could find a situation in which large parts of the financial system just get bypassed and that could have some very, very big structural implications” Mr Byres added.