RBA To Trial Digital Currency

The Reserve Bank of Australia is set to launch a new project to explore a digital version of the Australian dollar — issued by the central bank — to help create digital asset markets for commodities, fixed income products or carbon credits.

The RBA has partnered with The Digital Finance Cooperative Research Centre (DFCRC) — created last year — on a year-long trial that will garner potential use cases from market participants for the central bank digital currency (CBDC) in Australia.

Of those options, the most viable will progress to a limited-scale pilot, set to operate in a ring-fenced environment according to an RBA statement on Tuesday.

Beyond theorising, the CBDC will be a real claim on the Reserve Bank and would allow researchers to dissect its applications for creating innovative payment and settlement services for both households and businesses.

The DFCRC’s chief executive Andreas Furche believes said that a central bank digital currency was technically feasible, but the limitations are curious.

“The key research questions now are what economic benefits a CBDC (central bank digital currency) could enable, and how it could be designed to maximise those benefits,” Furche said.

The RBA is interested in CBDC allowing for ‘atomic’ settlement, that is, the exchange of an asset and payment simultaneously.

Further, the research project will consider the regulatory, technical and legal issues associated with a central bank’s digital currency.

China’s economic recovery isn’t gaining the momentum money managers are awaiting.

Data from China Beige Book show that the economic green shoots glimpsed in August didn’t sprout further in September. Job growth and consumer spending faltered, while orders for exports came in at the lowest level since March, according to a monthly flash survey of more than 1,300 companies the independent research firm released Thursday evening.

Consumers’ initial revenge spending after Covid restrictions eased could be waning, the results indicate, with the biggest pullbacks in food and luxury items. While travel remains a bright spot ahead of the country’s Mid-Autumn Festival, hospitality firms and chain restaurants saw a sharp decline in sales, according to the survey.

And although policy makers have shown their willingness to stabilise the property market, the data showed another month of slower sales and lower prices in both the residential and commercial sectors.

Even more troubling are the continued problems at Evergrande Group, which has scuttled a plan to restructure itself, raising the risk of a liquidation that could further destabilise the property market and hit confidence about the economy. The embattled developer said it was notified that the company’s chairman Hui Ka Yan, who is under police watch, is suspected of committing criminal offences.

Nicole Kornitzer, who manages the $750 million Buffalo International Fund (ticker: BUIIX), worries about a “recession of expectations” as confidence continues to take a hit, discouraging people and businesses from spending. Kornitzer has only a fraction of the fund’s assets in China at the moment.

Before allocating more to China, Kornitzer said, she needs to see at least a couple quarters of improvement in spending, with consumption broadening beyond travel and dining out. Signs of stabilisation in the housing market would be encouraging as well, she said.

She isn’t alone in her concern about spending. Vivian Lin Thurston, manager for William Blair’s emerging markets and China strategies, said confidence among both consumers and small- and medium-enterprises is still suffering.

“Everyone is still out and about but they don’t buy as much or buy lower-priced goods so retail sales aren’t recovering as strongly and lower-income consumers are still under pressure because their employment and income aren’t back to pre-COVID levels,” said Thurston, who just returned from a visit to China.

“A lot of small- and medium- enterprises are struggling to stay afloat and are definitely taking a wait-and-see approach on whether they can expand. A lot went out of business during Covid and aren’t back yet. So far the stimulus measures have been anemic.”

Beijing needs to do more, especially to stabilise the property sector, Thurston said. The view on the ground is that more help could come in the fourth quarter—or once the Federal Reserve is done raising rates.

The fact that the Fed is raising rates while Beijing is cutting them is already putting pressure on the renminbi. If policy makers in China wait until the Fed is done, that would alleviate one source of pressure before their fiscal stimulus adds its own.