A recent report from the U.S.-based Atlantic Council think tank revealed that a total of 130 countries are now exploring central bank-issued digital currencies (CBDCs). Over half of those are already in advanced development, pilot or launch phases.
However, when it comes to Australia, the process of issuing the digital version of Aussie dollars (eAUD) is “multifaceted,” says David Lavecky, head of blockchain firm Canvas.
Speaking to Cryptonews, Lavecky explains why an Australian CBDC is “some years away,” as confirmed by the Reserve Bank of Australia (RBA) in August. He also stresses on addressing challenges including legal, regulatory and operational, before considering a CBDC launch.
Cryptonews: How was Canvas involved in the entire process of the Australian CBDC research and pilot in the last year? What were the conclusions drawn during the research and trial?
David Lavecky: Canvas was selected to demonstrate foreign exchange transactions using CBDC. Utilizing our Layer 2 ZK network – Canvas Connect, – we successfully conducted Australia’s first-ever foreign exchange transaction using CBDCs (eAUD to USDC).
The solution has the potential to dramatically increase speed and reduce the risks and costs compared to traditional foreign exchange (FX) trading and remittance networks.
Traditional FX trading and remittance networks do not operate continually, restricting capabilities for instant trade and transfers globally. Public blockchains such as Ethereum offer an alternative but lack privacy, scalability, compliance and regulatory capabilities.
During the past year, we met and successfully demonstrated our solution to the Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC). Canvas made the first FX transaction using eAUD.
One of the key findings from the pilot was the critical importance of privacy and confidentiality in CBDC transactions. Our technology offers a balanced approach to privacy, ensuring confidentiality without compromising on interoperability and efficiency. This concept of “regulated privacy” is vital for any large-scale financial transaction system and was highly valued by the RBA and other stakeholders.
Our participation in the pilot showcased the transformative potential of CBDCs. The experience has been a springboard for Canvas, opening doors to further global CBDC opportunities and reinforcing our commitment to driving digital transformation in financial markets.
Cryptonews: What are the pressing challenges involved in launching a CBDC and how to address those immediately?
David Lavecky: A major concern that requires immediate attention is the legal and regulatory framework surrounding CBDCs. While technological advancements can be rapidly developed and deployed, the legal landscape needs to catch up to provide a stable environment for CBDCs to operate. Regulatory clarity is essential for both government institutions and private sector participants like Canvas to move forward confidently.
During the pilot, we worked closely with regulators to navigate existing laws and even took up exemptions for clearing & settlement facilities. The experience highlighted the need for a more streamlined legal framework that can accommodate the unique characteristics of CBDCs, such as privacy, interoperability, and real-time settlement.
On the technical front, the challenge was to ensure that our Layer 2 ZK network could meet the stringent requirements for privacy and efficiency while being compliant with regulations. We were able to successfully demonstrate “regulated privacy,” but it underscored the need for ongoing research and development to adapt to evolving regulatory expectations.
Addressing these challenges is not just a task for individual companies but requires a collaborative effort involving regulators, financial institutions, and technology providers. It’s an exciting yet complex journey.
Cryptonews: Despite in-depth trials, why is an eAUD not possible in the near future, as announced by the central bank? What is pulling back Australia from furthering its CBDC launch?
David Lavecky: The cautious approach taken by the Reserve Bank of Australia towards the immediate issuance of an eAUD is multifaceted. While the pilot demonstrated the technological feasibility and potential benefits of a CBDC, there are still several hurdles to overcome. These include legal implications, regulatory challenges, and the need for a robust operational framework that can seamlessly integrate with existing financial systems.
Another factor is the complexity of implementing a CBDC in a way that complements, rather than disrupts, the existing financial ecosystem. The RBA is likely considering the broader implications for monetary policy, financial stability, and the role of intermediaries in the financial system.
It’s also worth noting that while some countries are in the advanced stages of launching a CBDC, each nation has its own set of economic conditions, regulatory environments, and technological readiness that influence the speed of adoption. The Australian CBDC pilot was focused on wholesale financial products as the Government has heavily invested in retail real-time payment systems. Whereas in the UK, Europe and China, the CBDC programs have been focused on retail sectors.
The eAUD pilot has been invaluable for understanding the complexities and opportunities presented by CBDCs. It serves as a foundational step for future research and development, both in Australia and for Canvas, as we explore global opportunities.
Cryptonews: What are the current status and future developments of an eAUD?
David Lavecky: The current status of an eAUD is exploratory, as evidenced by the recent pilot conducted by the RBA.
While the technology has been proven feasible, and several key themes have emerged—ranging from smarter payments to enhancing financial resilience.
Looking ahead, the focus is likely to be on addressing the legal, regulatory, and operational challenges identified during the pilot. This will involve collaborative efforts from regulators, financial institutions, and technology providers. The RBA and other stakeholders will need to delve deeper into issues such as privacy, interoperability, and the integration of CBDCs into the existing financial ecosystem.
For Canvas, the pilot has been a launch pad for showcasing our technology and exploring further global CBDC opportunities. We anticipate that the RBA will continue its research and potentially conduct more pilots to test different aspects of CBDC issuance and management. As these developments unfold, Australia’s approach to CBDCs will continue to evolve, informed by ongoing research, international developments, and the experiences of early adopters.
Cryptonews: How do you see cryptocurrency regulatory clarity in Australia, at a time when several digital assets businesses are planning to establish themselves in crypto-friendly jurisdictions such as APAC?
David Lavecky: Australia has been relatively proactive in providing a regulatory framework for digital assets, including cryptocurrencies. The Australian Securities and Investments Commission (ASIC) and other regulatory bodies have issued guidelines that offer some clarity for businesses operating in the digital asset space. This stands in contrast to the more uncertain regulatory environment in the United States, where the SEC’s heightened scrutiny has led some companies to seek more crypto-friendly jurisdictions.
The APAC region, including Australia, is increasingly viewed as a favorable environment for digital asset businesses due to its more defined regulatory landscape. Australia’s involvement in CBDC research and pilots also signals a willingness to engage with and understand emerging financial technologies.
However, it’s important to note that regulatory clarity is an ongoing process. As digital assets continue to evolve, so too will the regulatory frameworks that govern them. In Australia, the Treasury is actively working on legislation related to digital assets, and companies like Canvas are providing input to help shape these laws.
Overall, while Australia offers a more certain regulatory environment compared to some other jurisdictions, the landscape is continually evolving. Companies must remain agile and engaged with regulators to navigate this dynamic space successfully.
Credit: Source link
