Digital currencies are slowly shedding the reputational damage suffered in the early days of bitcoin when they were seen as the preferred currency of the black economy, managed through dodgy operators like Mt Gox.

However, as the technology underpinning bitcoin – blockchain – has become more mainstream, and with commitments from institutions such as the People’s Bank of China, central bankers around the world seem more comfortable interrogating the issue.

In an interview on Boardroom Media from the recent Morgan Stanley Disruption Evolved webcast, Reserve Bank of Australia assistant governor financial systems Michele Bullock was asked about the issue and acknowledged the discussions in the sector are ongoing.

“This topic keeps coming up with Sweden and China. China’s probably most far ahead, but Sweden also is reasonably advanced in thinking about central bank digital currencies.”

She reiterated the view of Australia’s central bank that it does not see the need for a retail central bank digital currency. 

Michele Bullock, Assistant Governor, Financial Systems

“Only around about three per cent of money out there in Australia is central bank issued money, cash.  The rest of it is intermediated money.  It’s held in financial institutions.  So we already have electronic money.”

Bullock said the question is what additional purpose would a central bank digital currency serve that electronic money from financial institutions is not already serving.  

“And we’re not really convinced that it does have a purpose in that way.  Having said that, all central banks are looking at the issue actively.  The Chinese, they have a different system over there in the sense that a lot of their electronic money, if you like, is in the Pays – WeChat Pay and Alipay.”

According to Bullock, “It’s effectively in a three-party system, so it’s a little bit different to drawing money out of bank accounts like we tend to do in Australia.”

She said Wechat Pay and Alipay filled a market niche in China. “They (consumers) didn’t have as wide access to electronic payments as we had in Australia.  We’ve had electronic terminals in Australia, practically universally for a long time. “

“I think that still, we remain to be convinced that there is a purpose for retail central bank digital currency that isn’t actually served by private sector money.”

Cross border payments

She also addressed the issue of cross border payments saying this is one of the most challenging areas in payments.  

“When I first started in payments in 1998, cross-border payments were on the radar and I have to say I’m pretty disappointed that we haven’t made much more progress on that in many years.”

She said they remain very expensive, although she acknowledged there have been changes.

“Technology is helping here as well.  There have been some new players coming into the market here, which are offering much cheaper options than particularly the major banks.  I expect that sort of thing to continue,” she said referencing Facebook’s Libra initiative as an example.

“I’m reasonably confident that technology is going to help us here because the traditional banking system through their correspondent banking arrangements, hasn’t managed to solve this problem.  But I’m increasingly confident that there are new technologies and new players in here that are going to help make real-time or very close to real-time and cheaper cross-border payments.”

Bullock said the issue extended beyond just cost, with the time it takes for payments to be made also in need of consideration.

“I’m increasingly confident that there are changes going on in technology and new players that are going to help lower the costs and increase the speed of cross-border payments over the coming year.”

On another note, Bullock also referenced the growing preference of younger consumers for new ways of paying for products and services and a change in the way consumers are treating credit cards.

“It’s not just related to COVID though, we’ve been seeing this for some time in Australia as well.  Credit card accounts are declining, the amount outstanding on credit cards is declining. Credit cards tend to be held by older people, people of higher incomes.  Most younger people … they don’t have credit cards and they don’t want credit cards.  They’ve got debit cards, “ said Bullock. “Those that do want a little bit of credit might find that they have a debit card and if they need credit, they can use a buy now instalment sort of credit process.”

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