RBA eyes wave of digital sovereign currencies

When Facebook backed the Libra cryptocurrency in 2019, governments around the world took notice. Libra still hasn’t launched, but the Facebook cryptocurrency and China’s digital Yuan pilot are prompting governments around the world to more seriously consider digital sovereign currencies.

What is a digital sovereign currency? It’s basically a digital version of a sovereign currency, or the bank notes that central banks like the Reserve Bank of Australia issue.

But cryptocurrencies like Bitcoin and more recently, the Facebook-backed Libra coin are raising questions about the role of sovereign currency in a world that’s increasingly becoming cashless.

Bitcoin, the first cryptocurrency to put blockchain or distributed ledgers on the map, relies on decentralised technology was designed to disrupt the traditional banking model, which requires banks to validate transactions.

Since launching in 2009, Bitcoin hasn’t reshaped the banking system due to its price volatility, which also makes it a problematic replacement for cash. But it’s also spawned numerous other cryptocurrencies like Monero, and distributed ledger technology (DLT), such as Ethereum, to record and verify transactions.

The Facebook-backed Libra cryptocurrency project is known as a stablecoin – a less volatile cryptocurrency because it’s pegged to a commodity, currency or a set of currencies.

The emergence of Libra – currently only described in a whitepaper – has forced some central banks, including the Reserve Bank of Australia (RBA), to explore a central bank digital currency (CBDC), or digital sovereign currency.

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Source: RBA eyes wave of digital sovereign currencies – InnovationAus