Many people have used the phrase “data is the new oil” since it was first coined several years ago. But when the exact phrase was repeated by the Governor of the Reserve Bank of Australia (RBA), it might be worth paying fresh attention.
RBA Governor Philip Lowe used the quote this week in a speech at the Melbourne Business Analytics Conference. He then discussed the digitization of payments and the future of money, including the idea of a Central Bank Digital Currency (CBDC).
The race for digital currency
The RBA is not the only central bank pondering a CBDC in the Asia-Pacific region. In China, the People’s Bank of China is leading the charge and sees it as a critical idea to promote the use of the Digital RMB as a potential reserve currency to rival the USD.
Central banks also see digitizing their currency as a way to potentially head off the spread of cryptocurrencies such as Bitcoin, which has been explicitly banned in some countries.
With its new Diem – formerly Libra – unit of exchange, Facebook is another threat, which could be nullified by digitizing existing currencies and demanding that the cryptos are asset-backed.
Elsewhere, and not far away, the Bank of Thailand announced the results for its own CBDC project this month.
Unveiled last June, the project sought to develop a prototype payment system for businesses using a CBDC via a collaboration between the BOT, Siam Cement Group, and U.K. group Digital Ventures, with support from blockchain experts ConsenSys.
The project aimed to explore how a CBDC could be used by the business sector to enhance efficiency and make payments flexible while supporting financial innovation.
According to the BOT, the project showed how distributed ledger technology can increase payment efficiencies for business by allowing users to set their own conditions and parameters for its use, thereby tailoring use cases and driving flexibility.
Lukewarm in Australia
In Australia, the RBA has explored the CBDC idea and, while it’s done its homework thoroughly, is so far lukewarm on the concept for Australia as a retail product.
The RBA view is that Australia has sound digital payments systems, so any demand for a CBDC in the consumer space would be minimal at the moment.
They point to the New Payments Platform, which they pushed the commercial banks into building, and which is now gaining traction as a faster and more efficient payment gateway.
Today, as an Australian consumer, you can give someone your phone number, and if you link that to your bank account, they can pay you through the NPP. You can create an NPP identity, which is maintained even if you change all your banking details.
For the RBA, a digital AUD only becomes interesting in the cross-border trade space or the interbank market. Blockchain technologies could help more efficient and faster trade finance and significant transactions. It’s still a ‘watch this space’ situation, however.
As Philip Lowe said, a wholesale CBDC “could use distributed ledger technology to support the settlement of transactions in the interbank market.”
“Some of this work is taking place in the RBA’s in-house Innovation Lab, where we are collaborating with external parties on a proof of concept.”
Details yet to come, the RBA Governor said.
Indonesia central bank sprints
One central bank that is moving faster than its peers is Bank Indonesia (BI), where digitization is not so much a force for efficiency as part of a drive for financial inclusion.
With BI taking a leading role, Indonesia has a big chance to leapfrog several generations of technology and become a digital payments leader. In this case, a lack of development and legacy built up over decades could be a significant advantage.
Not only is BI pushing ahead with plans to trial a digital rupiah, but this week repeated its directive to the country’s major banks to phase out magnetic strip debit cards by the beginning of 2022. It wants them to replace them with chip-based cards to improve digital security.
Bank Indonesia (BI) Governor Perry Warjiyo has urged banks to digitize quickly, saying that currently, there are around 10 to 15 banks that have made a strong push for digitalization.
“We are not only supporting but encouraging our banks to digitize. I am proud that 10 to 15 banks in Indonesia have been digitizing very strongly,” Warjiyo said at the CNBC Economic Outlook event in February.
He noted that fifteen banks, including state-owned banks such as BRI, have so far taken dedicated steps towards digitalization.
Bank Indonesia expects e-money transaction values to grow 32.3% year-on-year to IDR 226 trillion this year, and it’s getting more help from the Government.
The Indonesian Government is backing the e-wallet venture LinkAja, which this week secured an investment commitment from the Indonesian ride-hailing Gojek.
With this latest investment, LinkAja has raised a total investment of more than USD 100 million through its Series B funding.
And finally, BI this month joined the Task Force for the Acceleration and Expansion of Regional Digitalization (Satgas P2DD) to demonstrate its support for the government’s efforts to accelerate and expand regional digitization.
As of today, Australia probably has the most digitized financial infrastructure in the Asia Pacific.
However, it’s clear that other nations are determined to play catch up fast.
So, while the RBA says there is no actual demand for a digital AUD today, it might have to adopt one in the not-too-distant future. Otherwise, it will be seen as a region laggard.
Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and HR&DigitalTrends, and the editor of NextGen Connectivity. His fascination is with how businesses are reinventing themselves through digital technology and collaborate with others to become completely new organizations. You can reach him at [email protected].
Image credit: iStockphoto/asikkk