Project Acacia: Australia’s Future with Digital Money 

Key takeaways

• Project Acacia aligns with the RBA’s strategic commitment to explore wholesale CBDC, as opposed to retail.
• The RBA and DFCRC have invited stakeholder comment and introduced a pilot program to test CBDC use cases.
• A significant reduction in transaction costs is projected from tokenising Australian financial markets.
• ASIC also released this month its proposed updates to INFO 225: Digital assets: Financial Products and Services. ASICs updated guide and broad range of examples should assist digital asset businesses to categorise their asset and determine whether they are financial products.
• In particular, stablecoins are being considered closely by ASIC, identifying certain functionality that will comprise a financial product (a non-cash payment facility), 
• Once applicable, the existing Australian financial services licence (AFSL) regulatory framework is appropriate and will be applied, with potential new authorisations required for digital assets that are unleveraged derivatives and a new broad category where the digital assets comprise a facility for making financial investment.

Overview of Project Acacia

In November 2024, the Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Centre (DFCRC) released a joint consultation paper exploring the role of new forms of digital money and related infrastructure that could facilitate the implementation of wholesale tokenised asset markets in Australia. The paper consolidates learnings from joint research initiatives between the RBA and DFCRC such as the 2023 central bank digital currency (CBDC) pilot project, other research, and past projects. 

Phase 1 of the project conducted research into different models for the settlement of tokenised asset models and was finalised in August 2024. The joint consultation paper now invites industry stakeholders to provide feedback on and submit expressions of interest to participate in Phase 2 of the project which involves evaluation and experimentation on different models used for the settlement of tokenised asset transactions. Phase 2 also seeks stakeholder involvement in an Industry Advisory Group.

The consultation paper solely focuses on wholesale CBDC, rather than retail. Despite this, the RBA encourages industry stakeholders who are interested in servicing the retail market and deal in the cross-border payment space, to make a submission as it may present opportunities for future collaborative partnerships outside of the scope of Project Acacia.

Background 

For several years, the RBA has been laying the groundwork for the issuance of a CBDC in Australia (see brief explanation of CBDC below). With the rapid evolution of Australia’s payments landscape, payment preferences have changed, use of digital finance has increased, and new technologies have been developed. Accordingly, the RBA has undertaken considerable research and looked to other jurisdictions to determine whether there is merit to the issuance of a wholesale form of CBDC in the Australian payments system.

A key motivation for the RBA is to improve cross-border payment efficiency as well as to reduce cost, increase safety and improve the speed of the transaction. For instance, the RBA considers that the potential transaction cost savings from tokenisation of financial markets in Australia could be in the vicinity of AU$1-4 billion annually. Other central banks globally have begun similar initiatives or have implemented CBDC to facilitate a similar purpose. For example, China has the largest CBDC pilot which facilitates approximately 260 million users. The Atlantic Council reported that as of June 2024, transactions using the digital yuan totalled 7 trillion yuan. The central motivation for China to introduce its pilot was to reinforce its retail and wholesale payments system, improve efficiency and increase its financial inclusion. According to the Atlantic Council, Australia and China make up two of the forty-four countries that have ongoing CBDC pilots. 

The RBA is committed to providing an effective regulatory system and encouraging innovation and in this context, has collaborated on several pilot programs and research projects with external parties (including the DFCRC) primarily to explore use cases, business models and integration methods that support wholesale CBDC in Australia.

What is CBDC?

CBDC refers to a new digital version of money issued by the RBA. CBDCs have two main forms, wholesale and retail. Currently, Project Acacia focuses on wholesale CBDC.

Wholesale CBDC is only accessible by banks and other financial institutions (wholesale market participants) and is used in wholesale payment and settlement systems. In comparison, retail CBDC is accessible by all households and businesses and operates as a form of digital banknote that can be used for transfers between friends or family and for in person and online transactions. 

Currently, the RBA does not have a strong reason to support retail CBDC over wholesale, as it considers the latter will produce immediate benefits such as lowering costs for customers and financial institutions.

Project structure 

Project Acacia is a consultation paper which details a joint research project comprised of two phases:

Phase 1 – Conceptual Research and Questions for Consultation 

This first phase was undertaken throughout the first half of 2024 and involved researching, identifying, and evaluating different models for the settlement of tokenised asset transactions. The purpose of Phase 1 was to compare and assess settlement models (using various forms of digital money and associated infrastructure) that could facilitate delivery-versus-payment settlement of tokenised asset transactions. 

Phase 2 – Experimentation 

The current phase of Project Acacia involves exploring and experimenting with models for settlement of wholesale tokenised asset markets identified during Phase 1. It is intended that use cases proposed by the DFCRC and selected industry stakeholders will inform their experimental research. Phase 2 may involve the RBA issuing a pilot wholesale CBDC and/or private sector parties issuing deposit tokens or other forms of tokenised money (e.g. reserves-backed digital currency or stablecoins), depending on the use cases proposed by industry stakeholders, and selected for development and testing.

Industry Advisory Group

The RBA and DFCRC propose to establish an ‘Industry Advisory Group’ comprising selected industry stakeholders to support the second phase of Project Acacia. The Industry Advisory Group will receive updates on Project Acacia progression and is required to provide advice on the pathway of the project, findings, and future research opportunities to the Project Acacia Steering Committee. The group is intended to be advisory in nature only and will not make decisions about the running of the project. The RBA has indicated that membership of the Industry Advice Group will be announced in March 2025. 

Next steps

The RBA had welcomed industry stakeholders to:

• Respond to the consultation questions in Appendix A to the consultation paper – by completing Part 1 of the Response Template.
• Register their interest in participating in Phase 2 (experimental research) of Project Acacia in 2025 – by completing Part 2 of the Response Template.
• Register their interest in joining the Industry Advisory Group for Project Acacia – by completing Part 3 of the Response Template.

*Submissions and expressions of interest were due in December. 

Other updates

ASIC released CP 381 Updates to INFO 225: Digital assets: Financial Products and Services, proposing updated guidance for businesses that offer financial services – including dealing, advising, market making and custodial services – related to digital assets (also known as crypto-assets). CP 381 emphasises the need for ongoing compliance with existing Australian financial services (AFS) obligations and provides a number of proposals for public consultation that strengthen the existing regulatory regime. 

ASIC also proposes relief to allow existing digital asset businesses that are in good faith, already in the process of applying for or seeking to vary an AFS licence (or an Australian market licence or a clearing and settlement facility licence) sufficient time to align their compliance systems with the updated guidance. ASIC has proposed a transitional approach (or a “class no-action” position) which would be available only if certain conditions are met (in particular related to timing).

‘Stablecoins’ and wrapped tokens are considered at length, with ASIC proposing to develop additional examples that will comprise financial products. ASIC is seeking feedback on the practical implications for business if such products were regulated in this way.

CP 381 also proposes the following updates to INFO 225: 

• 13 hypothetical worked examples to guide entities as to how ASIC interprets financial product definitions in different circumstances;
• changing the title of INFO 225 from ‘Crypto-assets’ to ‘Digital assets’, broadening the concept to include other arrangements such as tokenised versions of traditional financial products like securities;
• adding DDO considerations;
• extending the good practice guidance to also apply to providers of custodial and depository services; and
• making amendments to streamline the flow of INFO 225, consolidate duplicate terms and provide additional details where appropriate. 

Public consultation is open until 28 February 2025. An updated INFO 225 is expected to be released, along with accompanying material, sometime in Q2 2025. 

INFO 225 will continue to be a ‘living document’ and will be updated with the evolution of digital assets. We recommend that you engage in the consultation process for INFO 225 and remain aware of the incoming changes as a result of CP 381 and Project Acacia, in the new year. 

Please contact our team if you have any queries in respect of the above.