Payments Reshape the Financial System: RBA | News from the region

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Reserve Bank of Australia Governor Philip Lowe believes the changing world of payments is reshaping financial systems. Addressing the 2021 Payments Summit on Thursday, Dr Lowe said the world of payments seems more “exciting and dynamic” with each passing year. “People no longer talk about payments as the plumbing of the financial system,” he said. “Instead, they explain how what’s happening in the world of payments is reshaping our financial systems and how it will continue to do so in the future.” Dr Lowe said the banknote abandonment was in place before the pandemic, but has accelerated over the past two years and is expected to continue. “In contrast, there has been a trend increase in the number of electronic payments and this trend is also expected to continue,” he said. At the same time, a growing share of electronic payments is also made through digital wallets offered by big tech companies, including Apple Pay, Samsung Pay, and Google Pay. The RBA is currently conducting a public consultation on how to ensure that tickets remain widely available for those who want to use them. Dr. Lowe expects digital wallets to contain more than just digital representations of the cards that are in our physical wallets. “In particular, I expect them to be likely to provide access to new forms of digital money based on tokens or accounts,” he said. “This could allow day-to-day payments to be made by moving tokens rather than moving bills or securities between bank accounts.” But how far these tokens could go is not yet determined. “One possibility is that the tokens are issued and backed by the RBA, just like we issue and back Australian dollar banknotes,” he said. “It would be a form of retail central bank (CBDC) digital currency – or an eAUD.” The RBA will continue to closely review the case of a retail CBDC and work with other central banks on this issue. Another possibility is that payment tokens may be issued and guaranteed by an entity other than the central bank, although still denominated in Australian dollars, a form of ‘stablecoin’. A third type of potential digital token is a cryptocurrency, not tied directly to the AUD or backed by any particular entity or assets. “I remain skeptical that we will be moving in this direction for general purpose payments,” he said. Regarding regulatory challenges, he praised the federal government’s proposed plans to reform the payments system announced on Wednesday. “There will be a lot of work for the Treasury and the other agencies of the Board of Financial Regulators to implement the recommendations that have been accepted by the government,” said Dr Lowe. Associated Australian Press

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Don F. Davis