Firside Chat
Fireside Chat at DLT-Enabled
Brad Jones
Assistant Governor (Financial System)
DLT-Enabled
Online
–
25 February 2025
Audio
12.8MB
Watch video: Fireside Chat DLT enabled
Transcript
Paul Derham
For all the people watching, we’ve got a lot of business owners, a lot of people in what I call
the native digital asset sector, and a lot of people in the traditional finance sector who are
somehow involved or curious about the digital asset sector and what’s happening. We all know
that to do business planning, to plan out products, to stay current, we need to know the context. And
the pillar of the stable Australian payments system is the Reserve Bank of Australia. And we’re
really lucky to have you, Brad, to talk about what’s the current state and what’s the
future state. So, by the end of this half an hour session, you, the audience, will be able to feel a
little bit like you’ve got a bit of a better grasp on the future state of the central part of
the payments ecosystem, or what could be coming, which is an exciting conversation. So just to, I
guess, frame it in really concrete terms, Brad, I’ve gone back and looked at some of your
speeches, which, like white papers on some of these issues – if anyone hasn’t read
Brad’s speeches this year and last year and the year before, even I would recommend doing so.
I’ve already recommended to all of our lawyers to actually read them after reading them myself.
If we just go back to a really basic transaction, I want to think, I want the audience to just
imagine that you’re paying someone $1,000, okay? So how’s the RBA involved in that
transaction? So, let’s say you’re paying your business if you use the traditional BECS
system, the Bulk Electronic Clearing System, I think Brad, you’d call that the Toyota Camry,
right? The old trusty – it works. Yeah, is that fair analogy? Yeah, I’m seeing you nod.
Okay. So if you use that system I’m going to log into a bank account if I want to pay someone,
and I’m going to put in their BSB etc. The way that it’s processed is that payment, when I
click Send, is batched, right? It’s cleared in the next clearing cycle, probably overnight. Now
the settlement – the funds settle the next business day via the RBA’s Reserve Bank
Information and Transfer System, the RITS. And that’s kind of how the Toyota Camry system rail
works. Okay? The more modern one – that what Brad you’ve called the Ferrari – is the
new payments platform. I don’t have to type in a BSB or an account number. I can type in
something like an email address or a mobile number. It’s much easier. It’s quicker. The
funds are instantly settled using the RBA’s Fast Settlement Service. Okay, so it’s a
different platform. It’s immediate, nearly always immediate. And that’s sort of the newer,
faster rail. Now there’s a third, Future Money rail, which I think you’ve put into a number
of categories, Brad. You’ve got the unbacked crypto, like Bitcoin, some people could pay that
$1,000 invoice using Bitcoin. It’s clunky, it’s expensive, it’s slow. The
merchant is probably not going to accept it. There’s also backed crypto, like stablecoins that
are fully collateralised. You’ve got tokenised bank deposits. And then, I guess if there was a
public CBDC for retail, which there isn’t, there’s sort of this new category. And so if I
could just paraphrase everything that I’ve just said – we’ve got an old rail system,
we’ve got a new fast rail system, and then we’ve got this idea of tokenised money. So, with
that as a bit of a backdrop, and the RBA, sort of sitting in the middle of those two rails, the Camry
and the Ferrari, can you elaborate on some of the most promising innovations that you see coming in
payments?
Brad Jones
Thanks Paul and thanks for the invitation. It’s great to connect to this community here. But
maybe to answer that question, I could first give some context for what the Bank’s role is in
payments. So we operate the Real Time Gross Settlement system, RITS. We also set policy for payments
up to the limit of our regulatory powers, which were a last updated in a really material way back in
the late 90s. And what that remit gives us powers to do is to effectively promote efficiency and
competition in the payments system subject to controlling risk. So in layman’s terms, what we
want to see is – our North Star, if you like – is a payment system that’s a hotbed
of competition, a hotbed of efficiency, but where that competition and efficiency is actually helping
to strengthen and stabilise the financial system, rather than working in the other direction. For the
Payments System Board that sort of mandate, if you like, has found expression in a few key priorities
for us. One is for strengthening the safety and the resilience of our critical market infrastructure,
pushing ahead with reforms for payments and market infrastructures. We, for instance, recently got
crisis management powers in relation to critical market infrastructure, which we’re
operationalising now. I mentioned promoting competitive, cost effective, electronic payments.
I’ll come to a couple of examples of that in a moment. Enhancing cross-border is another key
priority and shaping the future of money in Australia. So they are all the strategic priorities for
the Payments System Board. The few, yeah – I would say we’re we are technology agnostic.
We just want to see those virtues of efficiency and competition result from, you know, the private
sector doing what the private sector does best, right, which is to compete, innovate, come up with
better, faster, more efficient, more resilient services for customers and for businesses. We try not
to be too prescriptive about the functional form that that should take. We feel like that’s
where the private sector is best placed to. But clearly for us, there’s probably three areas
that that really stand out. One is this, this evolution that’s been underway for a bit about a
decade now in real time payments. It’s still the case that although we’ve had a real time
payment system for bit over a decade, it’s not absorbing the lion’s share of account
transfers, for instance – that’s still occurring over the old BECS rails. So we think
there’s significant scope for the country to benefit from
24/7
operation, real time settlement, richer data, enhanced data
capabilities and so on. So the transition to real time payments, we think, is still actually in its
infancy in Australia, even though the base infrastructure has been with us for, you know, a decade or
so. So that’s, that’s one piece. There’s another piece I mentioned at the outset,
around cross-border. This is not an Australian specific issue, but Australia made some commitments to
the G20 to increase the speed and reduce the cost of cross border payments. This is a fiendishly
complex area. And all I’ll say there is that there’s been some progress, but it’s been
really slow, and it’s hard for various reasons, but, but it is a key priority for us. And the
third area is wholesale digital money, and that’s where the likes of – in the picture you
painted stablecoins, potentially tokenised bank deposits and central bank digital currency –
come into the frame. And that, I should be clear, that the main area of interest for us as public
policy makers here is looking into the issue of how new innovation in programmable money and
tokenised money could support the development of tokenised asset markets. We’ve done some
preliminary work on what we think some of the benefits, but also some of the issues or challenges,
could be associated with tokenisation. There’s an ongoing program of work around that. But where
we’re looking at it is what forms of settlement – assets, stablecoins, tokenised bank
deposits, or CBDC – could best help enable and facilitate tokenisation of assets. So
that’s a, that’s a key area focus for us. And we’re running a new pilot, for instance,
precisely to examine more closely what some of the policy and technical issues are there.
Paul Derham
Great, well, well, thanks for that. Let’s, let’s talk a little bit more about central bank
digital currencies, CBDCs. You’ve, you’ve talked a bit about these publicly. There’s
been, there’s been, over the last couple of years, there’s been a pilot, and there’s a
pilot that’s starting again. Do you want to talk about Project Acacia and sort of the related
issues that you’re dealing with at the moment?
Brad Jones
Yeah, sure. So for those that are – some folks on this call were actually involved in our first
pilot, which was quite different from Project Acacia, which is our new research project that
we’re running with our research partners at the Digital Finance CRC. The first pilot, we were
not prescriptive about use cases at all. We really threw the net as wide as we could, and put it to
industry and said – Look, you folks, tell us, where do you see the most promising use cases,
whether it’s retail or wholesale? We’re agnostic. We got a whole bunch of ideas, and we
whittled that down into a short list and ran with about just over a dozen. We transitioned those
through to the formal part of the pilot. That pilot ran for a number of months, and at the end of
that project, we wrote up a report, sort of summarising our high-level reflections. One of the key
learnings from that pilot was that the use cases that seemed to be most interesting from an
economy-wide perspective, were around this issue of tokenisation in wholesale markets. We explored
the retail space. We were curious. We wanted to make sure that we hadn’t been missing things.
Nothing really left off the page to us on the retail side, recognising that we do have a fast, real
time payment system, in contrast to some other countries that are looking at a retail CBDC, for
instance. And so that led us basically to where we are today, which is the next pilot program, which
is focused in a much more concentrated way on this question of tokenised assets, and what are the
different forms of money that could help promote the growth of tokenised asset markets. You know, the
three that are in scope for us are stablecoins, tokenised bank deposits and wholesale CBDC. We are
genuinely, at this point, open minded as to sort of where that research will land. The only sort of
guiding – well, one of the guiding principles, though, for us from a public policy perspective,
I should be clear about – is that at the Bank we, like all central banks, comply with a set of
standards globally known as the Principles for Financial Market Infrastructures. And one of the key
principles there is that for systemically important markets, there is a presumption that those
transactions should be settling in the ultimate safe asset where you have guaranteed finality and
there’s basically no credit risk, which is, you know, central bank money. And so part of the
reason why we’re so interested in a wholesale CBDC or doing further research in it, is precisely
because if tokenised asset markets ever become truly enormous, then there could well be a case to
look at the role that a wholesale CBDC could play in anchoring that market.
Paul Derham
That’s a good point. Let’s just, for the sake of the audience watching, they’ll all be
familiar with stablecoins. We know that CBDC projects are focusing on wholesale markets, as
you’ve pointed out. Can you elaborate a bit more on tokenised bank deposits? Because my
understanding is, JP Morgan have sort of done something in this space. Some Australian banks are
dabbling. The MAS is sort of collaborating on a wider project with banks. What does that look like, a
tokenised bank deposit?
Brad Jones
Yeah so, I wouldn’t – you’re right, Paul, in that I would say globally, stablecoin
issuance is absolutely well ahead of tokenised bank deposit issuance. But the reason that central
banks are looking at this, including the central bank of central banks, the BIS, has done a fair
amount of work on this, is because the underpinning of today’s payments system is that you
basically have two tiers. You have central banks, sort of providing the foundational layer, if you
like, the foundational tier, which is operating the key settlement infrastructure, RTGS system, but
also in settling or ensuring finality of transactions that are going on between banks, commercial
banks, who also hold a deposit account at the central bank. And so you’ve got all this furious
transfer going on between banks. The ultimate settlement is happening across the central bank balance
sheet, where the central bank’s basically debiting one bank’s account with it and crediting
another one. And so part of the reason that central banks are looking at tokenised bank deposits is
because it could be a functionally superior way of allowing payment, different types of payments, to
be made in a way that preserves this two tier system that we understand, that has served the economy
well for decades. So that that’s why, that’s where central banks are looking at it.
It’s a very different system from a world of stablecoin issuance which could be occurring where
you have non-bank issuers, for instance, issuing those claims, and they would be more bearer
instruments rather than account or account instruments. And so the central bank would have much less
of a role in facilitating, in fact, no role in facilitating ultimate settlement for stablecoins as
distinct from, say, a tokenised representation of a bank deposit.
Paul Derham
Yeah, that’s a really good explanation, and hopefully it gives a little bit of context to the
people watching this, many of whom will have used stablecoins for various reasons and are familiar
with that notion. I guess, as you know, Brad, there’s also this consultation going on with ASIC
about it, re-articulating what it thinks is a financial product and ASIC has come out saying, in
draft, we think stablecoins are really financial products. They’re non-cash payment facilities,
and we want to regulate them. People are really concerned about that, because it’s seen as the
final rail that’s available to them if they can’t get banking access, which is the case for
a lot of native digital asset businesses. So it’s important, I think, for those native digital
asset businesses to see there’s this strong priority from – at a government systems level
– of stability and strength and finality in transactions, and that is why there’s this
reluctance to suddenly make it easy for anyone to go off and issue their own stablecoin. And so I
think that provides a little bit of context, because right now there is a raging debate about, how do
we regulate stablecoins in particular. There’s another layer of problems, I guess, with the big
global stablecoins that I’ve come across as a digital asset lawyer – and you know, our
firm acts for a lot of these big global groups, not the two main stablecoin groups, but a lot of the
global crypto asset groups – the problem with having a centralised stablecoin that
everyone’s using is it’s probably, let’s say it’s set up in a low tax
jurisdiction. There are billions of dollars of profits being made in another low tax jurisdiction. If
there’s a criminal fraud situation in Australia, it’s very difficult to have any recourse
if, if someone loses money, or they’re scanned and they brief their lawyers, and it’s to do
with a global stablecoin, there’s always, there’s all these other problems with these
non-Australian, unregulated stablecoins. So anyway, it’s quite, it’s quite a wild west, I
think, at the moment. And this is sort of leading me into the next question here is – what kind
of regulatory reforms do you think we need, Brad? Because I know you’re working with Treasury
– Treasury put out a consultation paper on regulating payment stablecoins, amongst other
things. So yeah, any comments on what reforms you think are needed?
Brad Jones
And that’s really a question for the Government. But what I can say, is that the proposal that
Treasury floated where stablecoins of different sizes could be subject to different sort of
regulatory regimes and different supervisors – so for instance, for the smaller coins, ASIC
would have oversight for the larger ones, APRA would, that concept of like proportionality based on
size is one that, at least at a philosophical level, would be very supportive of. I think what’s
also really important is that there’s a level playing field for innovation. We as regulators
have to be technology agnostic. What we’ve got to focus on is the outcomes, not so much the
precise functional features that industry might want to employ. If innovation is going to promote
public trust, it’s going to promote stability in the financial system, if it’s not going to
result in any competitive behavior that leaves businesses or households worse off, you know, then
you’re going to have a lot as a proposer of that concept. Generally speaking, you’re going
to, you know, you’re probably going to get further than one that is, is not checking all those
boxes. Now, there’s no guarantees, of course, but there are some core concepts I think all
regulators buy into, which is, you want to minimise cross-border regulatory arbitrage, which, as you
said, Paul, is a major issue. And I can tell you, like internationally, the various forums that I
attend, it’s almost agenda item one – how do we minimise cross-border regulatory arbitrage
so that stability in the system is not being undermined, and so that we can promote innovation, but
in a way that doesn’t sort of undermine, really, you know, trust and consumer protections?
That’s absolutely foremost in everyone’s mind.
Paul Derham
That’s good. And I like the way that you described it, Brad, in one of your speeches, that the
RBA is an anchor and it’s an enabler, right? So on one hand, you’re balancing protection,
stability, risk mitigation, and on the other you want to enable like you said, healthy competition
and efficiency. And so I guess it’s the enabler component that we’re focusing on today
without ignoring the anchor component. Tell us about the sandbox, the regulatory sandbox. In
Australia, we’re at, we’re at 2.0 aren’t we, of the enhanced regulatory sandbox?
And hey guys, you’re probably the next speaker. And yeah, we’ve got about eight minutes to
go. So that’s what, exactly what Brad, you and I did. It’s a little cameo, accidental to
say hi. So there’s been the first regulatory sandbox, which is, I guess, a bundle of legislative
instruments released by ASIC with its limited law making power, allowing certain activities that
would normally require a license to go unlicensed, if it’s in the sandbox. Then there was
2.0 and that’s coming up for review. But I know Brad, you’ve got a view on sandboxes.
Brad Jones
Yeah, one of the one of the learnings that we actually wrote about in our public report at the
conclusion of our first CBDC pilot a couple of years ago now, was the feedback we got from industry,
which we reflected on and socialised with the other regulators in Australia, was this sense that the
regulatory sandbox was well intentioned, but probably hadn’t landed in a way that was proving to
be as helpful as it potentially could. And so our sense was that there was certainly scope to have
another look. And in particular, we drew some attention to the fact that if Government is to
commission another review of the sandbox, and my recollection is, I think it could be due this year,
but it’s really the Government’s prerogative as to when it wants to conduct that that next
review, that we don’t need to be splitting the atom here ourselves – we can look at what
other countries have done. There’s some interesting examples internationally where you’ve
seen regulatory sandboxes used in a way that has probably aided the transition between really
greenfield innovation and the valley of death, are they getting to actual application. And I suspect
if and when that review is done, there’ll be a number of learnings we can take from the
international experience, and embed them in whatever the new form of our sandbox would be. The last
thing I’ll say is that we recognise, although the Reserve Bank has got a particular remit in
regulating aspects of the payments system, that the sorts of issues that we’re talking about
more generally around innovation in in our financial system, in our payments system – that
draws in all the regulators, ASIC, APRA, Treasury. And for that reason, a new steering committee
that’s overseeing that from a governance perspective, our Project acacia, has said that
we’re running with our industry partners, the Digital Finance CRC, we have got representatives
from our other agencies sitting around the table, listening to feedback we’re getting from
industry, and engaging so that everyone has an opportunity to hear, you know, given a strong
interest.
Paul Derham
Yeah, look, that’s excellent. And I’ve personally experienced – well, heard the
frustrations of clients trying to use enhanced regulatory sandbox. So that’s the
2.0 version. And to give you an example, if you want to offer a service that issues a non-cash
payment facility, which everyone’s going to be doing under ASIC’s, new interpretation
– well, every digital currency exchange is going to be doing under ASIC’s clarified
interpretation of a wallet and how it works in certain situations – you can’t issue a
non-cash payment facility if you’re not relying on ADIss for certain parts of the ecosystem, so
regulated banks. And so there’s a real limitation in the enhanced regulatory sandbox, as it
stands for payments innovation. So that’s something for those of you – a lot of you who
are watching will be putting in submissions to ASIC’s consultation paper about the draft
Information Sheet 225, if you’re putting in a response, it’s due by the end of this month,
so in three days. And in your response, you can say – we think there should be an even more
enhanced regulatory sandbox, and here are some reasons why. So if anyone wants to do that,
that’s a way that you can get active on that point. But look, Brad, conscious we’ve got
three more minutes. Tell me what do you think, of all, things that or some of the things we’ve
discussed and things that we haven’t discussed, what’s one of the most promising
opportunities that you see coming up in the future of money in Australia?
Brad Jones
As I said, well, I think a few things. One is we’ve really only scratched the surface, I think,
of the full capabilities of real time payments. That’s a first proposition. And so there’s
a long way to go there, and that, that includes the cross-border piece. There’s been some
inhibitors there, but the NPP, for instance, has got, has got a key role, also on the cross-border
side. So that’s, that’s one of them. And I think it’s, it’s probably hard to go
past the concepts around programmability that a tokenised world could lead us to and the role that
different types of money, digital tokenised money, could have in facilitating transactions that are
not happening, or facilitating trade in markets that don’t yet exist. So that these new forms of
money, to my way of thinking up, have the potential to uplift the functioning of our financial system
in one of two ways. It’s either going to make the existing markets that we have settlement much
more efficient. You know, you collapse a t+2 world into a t+0 world. And at the other end
– and to be honest, the gains there may be fairly small per trade, but because these markets
are so vast, they’re going to aggregate up to some really significant efficiencies and cost
savings. So that’s one prism. The other prism is these new forms of money. What type of new
markets, greenfield markets that don’t currently exist today, could they help give life to
because of the unique features, real time information updating and so on? That’s really
exciting. That one’s probably further, you know, out in the ether, maybe 5, 10, years away. But
yeah, it’s hard to not sort of be certainly intellectually curious about where all this might
take us.
Paul Derham
Look thanks again for your time. Thanks for sharing with us some of that information, which is really
just a snippet of some of the things you’ve said publicly. So for anyone that wants to know
more, there’s a whole lot of content on the RBA website of different speeches that Brad’s
given and videos and things like that. Understanding how the RBA sits in the middle of
Australia’s payments system is so important and so few people really have taken the time to look
into it, but it’ll help you understand some of the market forces around regulation of
stablecoins, around banking issues, around why settlement takes time, and sometimes when it’s
– and other times it’s really fast – so thanks Brad and thanks everyone for
watching. We need to hand over now. I think it’s time.