The eAUD initiative by the Reserve Bank of Australia is presently in a pilot stage on a public Ethereum layer-2 network
Australia is progressing towards the creation of a central bank digital currency (CBDC) following the announcement of a pilot for the eAUD, the digital form of the Australian dollar issued by the Reserve Bank of Australia.
In this initiative, the RBA is working alongside the DFCRC, with participants including ANZ, Mastercard, and the Ethereum-based layer-2 network Canvas Digital, to investigate 14 use cases for the eAUD. These uses span various applications, from offline payment solutions to tokenised business invoices and livestock auctions. The pilot aims to offer practical insights for the industry and enhance policymakers’ comprehension of how a CBDC could enhance Australia’s financial system and economy.
Canvas, a layer-2 network on the Ethereum platform utilizing zero-knowledge rollups for transactions, is also part of the pilot program. They will explore settling foreign exchange transactions using Circle’s USDC stablecoin alongside the eAUD. Zero-knowledge rollups improve the efficiency of an underlying network, cutting down settlement times and transaction costs by processing transactions on an alternative blockchain and then bundling them before sending them back to the main network. This method employs zero-knowledge proofs, a cryptographic principle that verifies transactions without revealing their details, ensuring financial institutions can maintain the level of privacy they enjoy in foreign exchange markets as they navigate currency fluctuations.
David Lavecky, CEO and co-founder of Canvas, believes that CBDCs and digital currencies could significantly accelerate and reduce costs of currency transactions compared to legacy systems, which currently handle trillions of dollars at a slow pace. He points out that these systems enable markets to function beyond regular business hours, minimizing friction and enhancing capabilities. While privacy concerns are prevalent regarding CBDCs, Lavecky assures that this issue will be addressed, but emphasizes that the pilot’s primary focus is to evaluate potential use cases and assess whether a CBDC is a viable option. He reinforces that no decisions have been made yet about the issuance of a CBDC or the technology to implement.
CBDCs represent digital currencies tied to the value of fiat currencies and fully supported by their respective governments. So far, over 10 nations have launched a CBDC, with 89 countries in various stages of piloting, developing, or researching these currencies. Recently, Japan announced its intent to initiate a CBDC pilot program in April. The RBA has been examining CBDCs for several years and previously “offered [the] industry an open digital canvas for their proposals” on potential CBDC applications.
Assistant Governor Brad Jones remarked that CBDCs could enhance cross-border payment efficiency, lowering transaction costs and speeding up settlements. Furthermore, he noted that the eAUD represents “an actual digital claim on the reserve bank” and is not merely “an abstract exercise in a sandbox,” referencing some experiments with CBDCs in New York. Although some legislators differ in opinion, such as Republican House Majority Whip Tom Emmer, who reintroduced a bill last month seeking to prohibit the Federal Reserve from issuing a CBDC, the RBA maintains a positive outlook on the potential advantages of a CBDC for Australia’s financial landscape and economy.
The trial is scheduled to occur from March 31 to May 31, with a comprehensive report detailing the findings and evaluations of the various use cases set to be released on June 30.
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