Aussies crowdsource a business case for central bank digital currencies

Australia"s Reserve Bank (RBA) has announced it will try to find applications that justify the creation of a central bank digital currency (CBDC). The Bank's announcement states that plenty of research into the feasibility and possible technical design of CBDCs has been undertaken, but less work has been done on "use cases for …

[lglethal]

A Reserve Bank actually investigating if there is a Need or Use Case for a Digital currency. How novel!

OK China has a use case naturally, tracking it's citizens, but in the West we kind of look down on that. So it's nice to see someone in the west actually investigating if there's a use case out there, rather than just if it's possible to do it.

Just because you can do something, doesnt necessarily mean you should do it...

[Sorry that handle is already taken.]

I'm really fascinated to see if they can come up with any good reasons for any of this to exist.

There's about $100 in my wallet from pre-covid times but the rest of my money is already digital...

[jmch]

Use case

What would be a real-world use case for a cryptocurrency that is not a scam?

The use cases for existing cryptocurrencies seem to be:

a) cutting out traditional financial institutions who take their cut from every transaction, and having a pure peer-to-peer transfer mechanism. But while this cuts out traditional gatekeepers, there are still transaction costs on a crypto network (sometimes quite high)

b) cutting out traditional financial institutions who take days to execute a transfer, and have an immediate (or quasi-immediate) transfer mechanism. As pointed out in the article, this can be improved at least locally within a country by upgrading the traditional banking systems. Something that also needs to happen internationally.

c) allowing poor people access to banking services. Traditional banks are only willing to deal with people who have some money, so they can extract fees. Many people in the developing world have no access to banking services eg loans. Crypto allows a person to use their mobile phone as a cash wallet without having an intermediary hold the money in custody. There are pluses and minuses to this, but of course when someone doesn't have a lot of money they might prefer total control over what little thy have than deposit it at a bank. People with thousands / millions, on the other hand, are probably happy to have that deposited or invested with a reputable financial institution for a reasonable fee. Having a mechanism where network users can do peer-to-peer lending in a controlled (non-loan-shark) environment could be a good use case.

d) anonymity, although in crypto by definition the accounts are public the account holder can be anonymous. There is some scope for anonymous money transfers to happen, especially for people under repressive regimes, but lets face it a lot of the people wanting the anonymity want it to avoid tax or for criminal purposes. This is pretty much by definition a use case that no user would sign up to a central bank cryptocurrency for.

e) inflationary control, ie not allowing the network to arbitrarily generate tokens and thus devalue existing tokens. I don't think any central bank digital currency could offer this or would ever want to offer this.

Basically, apart from point c) there isn't much that uniquely requires a distributed peer-to-peer financial network. Although I certainly hope that pressure from cryptocurrency and new 'digital-only' banks starts steering traditional banks offer such 'luxuries' as real-time money transfers and non-extortionate international transaction rates

[Sorry that handle is already taken.]

Re: Use case

As distinct from actual use cases, this is mostly a list of classic cryptocurrency booster talking points.

a) If I want to transfer a dollar to a recipient in another country using a cryptocurrency, I have to first buy a token (paying a transaction fee to the exchange), then pay a transaction fee to the network to send the token, then the recipient has to sell the token (paying a transaction fee to the exchange). Who knows what the spread of exchange rates will be but if they aren't closely matched to real market rates, someone would arbitrage it, so there's unlikely to be any upside. In addition, there need to be enough buyers and sellers of the tokens at both ends for the system to be balanced.

Also, "traditional" financial institutions are regulated and insured and the money in my bank account is safe as a result. The same can't be said for many (if any) of the "non-traditional" financial institutions that have sprung up around cryptocurrencies.

b) These time delays are a regulatory issue, not a technological issue.

c) "Banking the unbanked"... Cryptocurrencies have failed to achieve this. Meanwhile, there are already services that do achieve this without resorting to cryptocurrencies, such as M-Pesa.

d) No regulator is going to support anonymous digital money because of the potential for money laundering. Governments won't support it either for numerous reasons (terrorism, general surveillance etc.)

e) Central banks can control inflation (to varying degrees of success) because they control the circulation of money, i.e. by creating or destroying it. We moved off the gold standard because the lack of control turned out to be disastrous.

[jmch]

Re: Use case

Good analysis, I mostly agree.

Re a) in a world where crypto is widely accepted, there is no need to transfer to/from any fiat currency, but of course the point stands that someone is taking a cut

b) that's news to me - I would guess that for large transactions in the thousands, or large volumes of transactions to/from an account that would be the case, but if there is regulatory reason that it takes 1-2 days for a small IBAN transfer that is clearly over-regulation

e) the theory of central banks controlling inflation by controlling the money supply is a nice theory. In practice this is abused by governments over-printing. True inflationary control means matching the amount of currency to the amount of goods and services on the market, so the price of goods and services is stable. But central banks aim for constant inflation (even if the aim is very low inflation) because the capitalist system depends on it (if your tokens are devaluing it encourages spending rather than saving). This is based on the flawed model that equates constant economic growth with higher living standard and happiness*.

Even if the model that aims for minimal inflation were a valid one, central banks still fail to stick to it, because every time there's a crisis, governments cannot resist the temptation to print money rather than take tough and unpopular decisions. It is also very unhelpful that many people do not know the difference between rising cost of living and inflation (which is only 1 out of many possible causes of the rise of the cost of living), and many journalists and politicians speaking on the subject also seem to not know the difference!!

*Although that's a completely different debate

[lglethal]

Re: Use case

Just on b) its Regulatory in the sense that it hasn't previously been regulated, and as such the banks like to hold on to the cash for as long as they can get away with. Basically they stick the money in a high interest account for as long as they can and THEN send it on. After it's done it's work for them.

If the banks are told by government they have to send it immediately, they can do that, and they lose a bit of profit from playing with your money, but they can do it.

So it's a regulatory issue as in the regulations are not there forcing them to transfer it straightaway and as such, they dont...

[Anonymous Coward]

Re: Use case

SEPA

[Anonymous Coward]

Re: Use case

> such as M-Pesa

Indeed. It's a testimony to just how much you can do with relatively little.

[Sitaram Chamarty]

Re: Use case

In India, the UPI infrastructure covers your points a, b, and c for domestic transactions. No one takes a cut, not even a small fixed amount, and it is instantaneous -- about the same speed as SMS or at worst a few seconds more.

(International transactions are not covered by this of course)

On point c, much as I hate the "your papers please" nature of India's Aadhaar, not to mention all the security issues it brings, it *has* helped poor people open bank accounts etc.

Also on point c, I do not think cryptocurrency enables the poor any better; most of them are illiterate, and you're talking about a system where **techno-literate** people regularly get scammed out of their savings, with no legal recourse because "immutable".

In short, I'd say "catering to poor people" is a particularly strong reason **not** to go for a cryptocurrency.

Point d is of course completely out, though most people don't care. I've found places where they discourage cash because it is convenient for the merchant to be paid digitally -- which would not be true if any of the banks in between were taking a cut.

[pavel.petrman]

Ring fenced tests...

... rabbits come to mind. Let's see how it goes this time round.

[Howard Sway]

Solution in search of a problem

At least they've admitted it, so hopefully someone will kindly point out that this is precisely the wrong way to solve things before they try and shoehorn it into processes it is vastly inappropriate for.

[Anonymous Coward]

email address as bank account??

WTF

which stupid bastard thought that was a good idea.

[Anonymous Coward]

Can someone enlighten me....

....As to why "users can identify their bank accounts with an email address or mobile phone number instead of having to memorize and recite account numbers" is a good idea?

Which ever method you use, you still have to remember and recite it, so why not use your account number? On the odd occasion I have to give someone account details I read them off the bit of plastic I always carry round with me. I have no bloody idea what my phone number is, not without looking for it. I never call myself, so why would I remember it?

As with all of these proposed 'digital currencies', it is very much a case of a solution looking for a problem to solve.

[Mike 137]

Convenience triumphs over common sense yet again

"The NPP requires the involvement of institutions, but works as quickly and efficiently as exchanging cash because users can identify their bank accounts with an email address or mobile phone number instead of having to memorize and recite account numbers."

Replace 'quickly and efficiently as' with 'more dangerously than' and you'll be nearer the mark. Substituting generally publicised credentials for function-specific credentials with limited exposure does not seem to me to be the optimum approach to security. Using cash does not expose your banking credentials.

[Anonymous Coward]

Really,

they will investigate ? You don't say.

At least the europeans and the americans do not resort to weasel-speak (in this occasion). They flat out said we are coming out with our

own digital currency. It will be designed to penalise savings and hard work (as in trying to earn more). Effectively they will convert money to

coupons / food stamps.

Now how likely is it that they will be eu and usa will be harmonised into one currency, given the fact that they make sure that the euro and the dollar

are at a 1:1 rate for over 2o years now. ( I am not an accountant. .8 or 1.1 are effectivelky 1 in this discussion). As far as people are concerned the two

currencies have the same value.

And how likely is it that the investigation of the weasel brigade in australia will conclude that they

want to harmonise with the euros and the americans ? Apparently ausies have fell in love with the iron curtain they were never a part of, and the

idea of food stamps will definitely appeal to their red alter ego.

After the successful trial run that was bc, they are read to come out with the digital food stamps. I am quite curious to see what they will say about

bc, etherium and all the rest hot air. They haven't announced a conversion system for those "currencies"

[IGotOut]

Use case scenario

Pretty obvious one. Cut the USA out of the digital money loop (Visa, Mastercard, PayPal) and retain more control of your own countries finances

However, just look at what happens to countries that try and stop using pretro-dollars. /conspiracymodeoff.

[that one in the corner]

Digital Currency automatically means Cryptocurrency?

Which is the assumption everyone is making here, even though the linked media release only says "potential use of new technologies such as distributed ledger technology" - note "potential".

Although, what would be the alternative? Some crazy system with plastic cards that can record how much "money" (tied 1:1 with the Oz dollar?) is "held" on the card at the moment. Machines at the till could "debit" some money from your card and "credit" it to the shop's.

Or vice versa if you handed over some cash. Maybe even "top up" someone's card after they've done some work for you!

No "crypto" in sight (well, just the proper cryptography that lets you secure access to the cards).

[Sorry that handle is already taken.]

Re: Digital Currency automatically means Cryptocurrency?

That's fair but if there are no elements of cryptocurrencies involved then I wonder how it can differ significantly from what we already have

[sreynolds]

I hope that this isn't going to involve mining

As most places are always connected and the RBA prints and mints tender it wouldn't surprise me if there is some cash like system with the RBA driving the system and probably singing each transaction and taking GST + provisional taxes etc.

I think that it is about time that the last serial tax evaders, tradesmen in cash are compelled to pay their fair share.

[Sorry that handle is already taken.]

Re: I hope that this isn't going to involve mining

Mining (i.e. proof of work) is a requirement to ensure that a distributed network of users don't have to trust each other to ensure that legitimate transactions are processed and illegitimate ones aren't. It has significant flaws (e.g. if one entity controls large enough mining resources) and obviously the energy consumption being proportional to the token price is a huge compromise.

If you're going to set up a centralised version of the same system, it doesn't need mining, and therefore doesn't even need a blockchain. You can do what we already do and use a traditional database...

[sreynolds]

Re: I hope that this isn't going to involve mining

Yeah well my point exactly is why would a government rely on consencus? Really, you want miners to start printing their own money?

Speaking of trust, it seems that the commonwealth only trusts Notes Australia (the commercial arm of the RBA that floods the world with polymer notes) to print notes.