Money has been undergoing a significant change in the past decade. Many consumers and retailers are increasingly going cashless, and alternatives to government-issued money – cryptocurrencies – are starting to take hold.
The Reserve Bank of Australia is currently working on a pilot for e‑dollar, a digital currency, which is likely be trialled in early 2023.
An e‑dollar would be a digital version of the Australian dollar. Just like storing cash in a wallet, users would be able to keep their e‑dollars in digital wallets on their phones or computers. Consumers are already able to pay for goods and services digitally, using their bank-issued cards or transferring money using banking apps or online banking. These transactions are always linked to their bank accounts, where they receive their salary or payments.
The main difference with the current system is that e‑dollars would not need to be stored in a bank. They would allow direct transactions between consumers and businesses without using banks as intermediaries.
In that sense transacting with e‑dollars would be similar to using cryptocurrencies – sending money from one digital wallet to another without needing a bank account. But the e‑dollar would be a digital version of Australia’s currency rather than a cryptocurrency. One Australian digital dollar would always be worth one physical Australian dollar, both issued and guaranteed by the Reserve Bank of Australia. The value of an e‑dollar would not be subject to market fluctuations like Bitcoin.
Cryptocurrencies, like Bitcoin, are outside government control and cannot be guaranteed by central banks. So far, only two countries worldwide, El Salvador and the Central African Republic, have adopted Bitcoin as a legal tender. As a method of transaction, cryptocurrencies tend to be popular in developing countries with a history of financial instability or where the costs of formal banking are prohibitive for most.
In advanced economies people tend to invest in cryptocurrencies, rather than use them for payment. Cryptocurrencies are unlikely to be ever recognised as legal tender by Australia or most other countries because they are:
However, at least 50 central banks around the world are researching, piloting and experimenting with digital currencies. This includes the European Union (EU), China, Sweden and the Bahamas.
The upcoming pilot in Australia would be exploratory – there is no commitment from the Reserve Bank of Australia to formally issue a central bank digital currency at the end of it. Should Australia implement the e‑dollar, it would not replace cash, or become a government-approved cryptocurrency. It would simply provide additional means to make and receive payment for individuals, small businesses and large corporations, without using banks as intermediaries.
