Leading voices in Australia’s cryptocurrency space are urging the Reserve Bank to develop its own digital currency to ensure the nation isn’t left languishing in the rapidly digitising economy.
“The bottom line is Australia will lose out to others, if we don’t lift our game,” says blockchain legal specialist Michael Bacina, partner at commercial law firm, Piper Alderman.
It comes as China’s Central Bank ploughs forward with plans to test a digital currency – albeit one more tightly controlled than the decentralised bitcoin version.
China’s move into the digital currency space has some predicting a new economic arms race – with a digital yuan challenging the supremacy of the US dollar.
While rumours mount that the US Federal Reserve plans to announce an initiative to digitise the US dollar, so far there’s been no official confirmation – leaving China the most powerful economic power leading the charge.
And while Australia isn’t in the same economic stratosphere as the US and China, Bacina says it’s still very much part of the game and can’t afford to sit on the sidelines.
“There’s a lot of people who think second-mover advantage is great, so you can learn from the mistakes of those who do it first, but Australia has a strong banking sector, this technology is already there and is going to help those who want to create disruptive new and better priced products,” he says.
“This technology is going to help improve the entire economy, if it’s designed right.
“With a well designed digital currency it can always be known at any point in time, just how much of a currency is in circulation.
“Let’s assume that a system was operating with appropriate privacy controls – the government being able to see the aggregate flow of money between industries, would be incredibly useful in economic management.”
“You may be talking about a reduction in the drops of GDP, which might otherwise occur from a looming recession.
“Any earlier information which the government can act on, over time gives resilience to an economy – that’s incredibly valuable.
“If China is there first then it’s making its economy more resilient in the long run.”
Bacina says Australia was an early leader in early blockchain adoption and regulation, but has since slipped back.
“Australia really doesn’t have a choice but to try and catch up,” he says.
“It’s one thing to say we’re an innovative country, but the numbers tell the truth at the end of the day.”
RBA’s digital trial
The Reserve Bank of Australia (RBA) may have just taken its first steps down that path, having announced it’s tested using central bank-backed digital tokens in wholesale payments between banks.
But, a digital currency for general retail consumers has been put on the shelf for the foreseeable future, due to RBA concerns it could create disorder within the current financial system.
For Bacina the potential benefits outweigh the risks.
“A digital currency system is so much more efficient, there’s so many benefits to a central bank digital currency for startups and enterprise to develop new products on.
“We have seen the rise of neobanks and fintechs, but one of the constraints they have is, they’re still interfacing with a banking system that is based on very old technology and very old ideas.
“So this huge change, which China will get to first, is a digital currency available for people to build products on top of.
“There’s going to create a huge number of fascinating products, things that we haven’t even thought that we could do, or products currently too expensive, that could be made vastly cheaper and accessible.”
A Facebook Libra leg-up
Meanwhile Facebook’s cryptocurrency plans continue to stagnate, with global financial institutions deeming the initiative too great a legal and regulatory risk at this stage.
However, while Libra’s momentum may have been slowed, Bacina says it has served to progress the cause of digital currencies from a broader perspective.
“It’s highlighted how much legislators and regulators need to learn about digital currencies and has prompted a lot of that learning, which is a great start,” he says.
“Part of the cost of using a digital currency is a knowledge cost – having to understand how to use it.
“At the moment it’s really difficult to use digital currencies. It’s like having a Model-T car and having to get out the handle and crank it and understand how to run the engine.
“I think properly done, a central bank currency that plugs in the back end will be hidden; and as it comes through to the retail world, it will be behind user friendly interfaces.
“So it can be more like having a push button to start, instead of a crank handle.
“And that’s when you’ll really see the adoption take off.”