It could appear counter intuitive to argue that a country like Australia with a relatively stable currency (AUD) would benefit from a digital currency.
That may be the case if NSW traded mainly with Victoria and QlD but that is not the reality. Australia trades on the world stage with countries and currencies of varying complexity and volatility.
Plus, it seems it’s not sufficient to simply have confidence in the almighty US dollar. CNBC recently interviewed Bank of England Governor Mark Carney who stated that “… the world’s reliance on the U.S. dollar as a reserve currency is too risky and proposed a new digital currency to replace it. In a multi-polar world, you need a multi-polar currency.”
Carney said a new digital currency based on a global basket of goods would provide equilibrium to a system where some countries have moved to zero or negative interest rates, while others, including the U.S., remain positive.
“The question is how do you get there,” he said. “You don’t just jump to something new overnight.”
It’s not as if the only digital currency being considered in the world is Libra. Central Banks around the globe have been contemplating implementation of digital currencies for years, and China is set to release its form of digital currency shortly.
Would there be benefit for Australia implementing a single digital currency (an eAUD)?
What if an eAUD allowed Australians to hold accounts directly with the Reserve Bank? This would bypass intermediaries, enabling better security (a safer system) and a cashless society, with increased transactional transparency and efficiencies (particularly for Government).
Additionally, potential implementation of an eAUD may be less about increasing transactional transparency and efficiencies, lowering costs for consumers and business (though important), and more about de-risking issues inherent with the banking systems’ implicit guarantee that ‘locks up’ significant financial resources and reduces competition. Read more here.
However, while demand for an eAUD may not be significant yet, the introduction of digital currencies, either from organisations (like Libra) or governments (like central bank digital currencies), with accompanying global digital infrastructure innovations, represents a challenge to the Australian financial system that needs serious attention.