While the prospect of Australia becoming a cash-free society took a leap forward following recent plans by the Reserve Bank (RBA) to trial a digital currency, the central bank has reassured consumers that – for now at least – it will only be tradeable between banks – concentrating on wholesale uses only.
However, given that Australia is already 98% cashless, the future of banknotes and coins - aka legal tender – could potentially have a limited shelf-life.
Trouble is while there’s a lot of talk about the upside a digital currency might bring, there’s precious little thought being given to how a cashless society would work in practice.
Best estimates put the value of Australia’s ‘black economy’ at around $50 billion or around 3% of the country’s GDP.
It’s called the ‘black economy’ because it represents undeclared income - no matter how small – between individuals and businesses alike.
The permutations of a cashless society would arguably change the fabric of Australian society overnight.
Suddenly everything could be on-radar
For example, you would kiss goodbye to door-to-door Girl Guide cookies at $2 a pop, no $10 for a Lion’s Club Christmas cake, no hoarding $50 or $100 notes under the mattress, no $50 to your neighbour for an old chainsaw they no longer have, no giving $5 to someone in need on the street and no ‘cashies’ to tradies for services rendered: That’s just the tip of the iceberg.
In other words, random transactions that you used to pay for with cash – the financial solvent that makes middle-Australia work – would be gone forever.
Suddenly, Australia could be catapulted into an environment where every incidental payment between two entities was now potentially under the radar of Austrac.
Assuming individuals have no means to give and receive payments electronically, a lot of these transactions will either cease to exist or will foster more creative bartering arrangements.
RBA governor is digital currency outlier
By her own admission, central bank governor Michele Bullock is not a fan of digital currencies, and last February told a parliamentary inquiry she didn’t believe in alternative payment solutions like bitcoin.
“It doesn’t have a solid value. You can’t be guaranteed that what it’s worth today will be worth the same thing tomorrow,” she said.
But while Bullock has cast doubts on the role of cryptocurrencies in Australia’s financial future, the majority of her colleagues on the RBA board appear much keener on the opportunities that digital assets may present.
In light of what’s happening offshore, there’s a prevailing view by the central bank and others in the financial sector that Australia has little choice but to take a seat on the global digital currency train or risk being left behind.
Major policy pivot globally
The driving force behind digital currency innovation is arguably coming from the U.S. where lawmakers have tabled new pieces of legislation, which if successful, could make it easier for companies to launch new digital asset products and to trade in crypto.
It’s these and other developments globally that stand to redefine money, payments, and financial services in Australia.
One interesting development is Australia’s Project Dunbar, a collaboration with the Monetary Authority of Singapore, the Bank of Indonesia, and the South African Reserve Bank, which is investigating the use of central bank digital currencies (CBDCs) to improve cross-border payments.
Banks around the world are also investigating what are called stablecoins – which promise to be safer types of cryptocurrency - for payments.
But by hesitating to engage with these crypto-based innovations, Caroline Bowler of BTC Markets argues that Australia risks missing out on an opportunity to be a leader in the global digital economy.
“This rise of digital assets presents policymakers with a chance to rethink existing frameworks and encourage positive change,” said Bowler.
“A forward-thinking regulatory approach could ensure Australia is not left behind as digital currencies gain further traction globally.”
RBA advances digital currency
Meanwhile, last week the RBA told the market that it was taking another major step toward a wholesale central bank digital currency (CBDC) with a range of industry partners pursuing projects using real money and assets for the first time.
Initially conceived last December, the RBA revealed that its "Project Acacia" initiative will test 19 pilot cases involving money and assets, along with five proof-of-concept use cases involving simulated transactions.
Project Acacia will look at how digital assets such as stablecoins, bank deposit tokens, and wholesale central bank digital currencies could be used across a range of asset classes, including fixed income, private markets, trade receivables and carbon credits.
Proposed settlement assets include CBDCs, stablecoins and bank deposit tokens, plus new ways of using commercial banks' existing deposits at the RBA.
Testing will occur over the next six months, using platforms like Hedera, Redbelly, R3 Corda, Canvas Connect plus other compatible networks and the RBA is expected to report its findings in the first half of 2026.
Banks on board
While details remain light, three major banks were quick to sign up to trial digital payment and settlement systems on Project Acacia to test how blockchain infrastructure could improve transaction processing.
Commonwealth Bank (ASX: CBA) is expected to trial (along with JPMorgan) how the technology can overhaul funding markets.
“We’re very pleased to bring together globally recognised digital asset leaders and critical financial markets infrastructure providers to explore how digital currencies and tokenisation can ensure the global competitiveness of Australia’s financial markets,” said CBA’s managing director of digital assets, Sophie Gilder.
Westpac (ASX: WBC) plans to focus on how people transact with digital tokens in existing apps, including the PayTo feature in its banking app.
“Westpac is helping the RBA explore what digital currencies could look like in the real world, while giving our customers access to new payment options safely and securely,” noted Jeff Byrne, managing director of global transaction services at Westpac’s institutional bank.
Then there’s ANZ Bank (ASX: ANZ) which is contemplating making bond trades using a central bank digital currency.
Meanwhile, operating in conjunction with the RBA’s Project Acacia is the industry and government-backed Digital Finance Co-operative Research Centre.
Based on a number of key experiments, the centre plans to test new types of digital money – like central bank digital currencies, stablecoins, and bank deposit tokens – which could be used to settle big financial transactions between institutions notably Australia’s banks and investment firms.
Given that some of the digital asset settlement processes being trialled currently sit outside the law, the regulator (ASIC) has agreed to excuse participants without penalty.
Brad Jones the RBA’s assistant governor expects the trial results to provide a better understanding of how innovations in the central bank and private digital money, alongside payments infrastructure, could enhance the way wholesale financial markets in Australia work.
CBDC cold war
Given that CBDC’s are gearing up to be the latest battleground in a new [monetary] Cold War, it’s easy to see why Australia can’t afford to be left behind.
Interestingly, despite the rhetoric coming out of the White House, the U.S. Federal Reserve is still only exploring the concept and potential implications of a digital dollar and there is no concrete plan or timeline for its implementation.
Similarly, while the U.K.'s pound and the euro currently have no digital equivalents, China has made rapid advancements with its digital yuan (e-CNY).
China’s e-CNY is expected to reshape the global monetary order by removing the country’s dependence on the dollar-based financial system that makes it vulnerable to U.S. financial sanctions.
By developing a state-backed digital currency, China also seeks to reduce its reliance on Western-controlled financial infrastructure, such as SWIFT – and offset risks that could destabilise its trade and economy.
According to the Central Bank Currency Tracker, while 72 countries are in the advanced phase of exploring, developing, piloting, or launching a CBDC, only three countries have managed to do so: the Bahamas, Jamaica, and Nigeria.
While the U.S. has faced partisan resistance, with bills like the CBDC Anti-Surveillance State Act seeking to ban digital dollars over privacy fears, the E.U. and U.K. are prioritising safeguards such as pseudonymous transactions, to balance innovation with civil liberties.
One of the perceived benefits of CBDC networks is that they allow nations to bypass traditional financial infrastructures and reduce their reliance on the U.S. dollar in cross-border trade.
