The Reserve Bank of Australia will soon trial its own digital currency. 

The RBA is running a limited pilot program as part of ongoing efforts to evaluate the future of Central Bank Digital Currencies (CBDC) in Australia.

While Bitcoin, Ethereum and other cryptocurrencies dominate the digital currency space, governments are looking to create their own versions. 

The RBA is collaborating with the Digital Finance Cooperative Research Centre (DFCRC) to focus on the potential uses and benefits of a CBDC.

‘The project, which is expected to take about a year to complete, will involve the development of a limited-scale CBDC pilot that will operate in a ring-fenced environment for a period of time and is intended to involve a pilot CBDC that is a real claim on the Reserve Bank,” the RBA said this week.

The bank is inviting public and private parties to develop specific use cases that could demonstrate the use of a CBDC to provide innovative and value-added payment and settlement services to households and businesses.

RBA deputy governor Michelle Bullock says it is “an important step” on the path to a potential Australian CBDC.

“It is basically an experiment,” she told reporters.

‘We and other countries have done pilots where we've looked at the sorts of things you'd need to do.

“The difference this time is that because it's a real claim on the Reserve Bank, it's a real-life experiment, which allows companies or businesses that have business ideas to actually come and use those claims on the Reserve Bank to see how it would work in practice.”

Ms Bullock said the system will have real functions, but they will be kept within a “closed loop”.

“They would purchase digital currency from the Reserve Bank, it would be a claim on the Reserve Bank, but it would only be able to be used within the closed-loop system of the particular business case they are putting up,” she explained.

“It's not money in the legal sense, but it is backed by the Reserve Bank in the sense that if a particular business has bought some of the digital currency from us for the purposes of the experiment, they sell it back to us and they get their money back.”

DFCRC chief Andreas Furche says CBDCs will find a place.

“CBDC is no longer a question of technological feasibility,” he said.

“The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximise those benefits.”