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Australia to regulate crypto, digital wallets in rule revamp

By Aaron Woolner and Andreas Ismar

Edited by Aaron Woolner

10:10, 8 December 2021

Unidentified people use ATM in Melbourne, Australia
Australia seeks to overhaul its payments regulations as digital wallet and cryptocurrency become more popular – Photo: Shutterstock

Australia is seeking to regulate cryptocurrencies and digital wallets in a major overhaul of its payment systems as technological advancement is creating a rapidly changing consumer behaviour.

In just a span of several years, nearly half of Australians are making payments through mobile phones. Non-cash payments have dwindled to less than a third, with the transaction value of AUD650m ($464m) each day, Federal Treasurer Josh Frydenberg said.

“We are in the midst of a digital revolution…Nowhere is this digital disruption playing out faster than in the payments and crypto-asset sectors,” he said in an address to the Australia-Israel Chamber of Commerce on Wednesday.

“Digital Wallets, Buy Now Pay Later and Cryptocurrency are fast becoming the new norm.”

The future of payment systems

Frydenberg said that existing regulations on payments, which were introduced around 25 years ago, needed to be reformed to enable better oversight, particularly with the rapid rise of payment means offered by global technology giants such as Apple and Google.

“Given the pace of change and those leading it, if we do not reform the current framework it will be Silicon Valley that determines the future of our payments system,” he said.

Early next year, the government plans to kickstart consultation to accommodate new payment systems such as digital wallets and buy now pay later and receive inputs on crypto assets and decentralised autonomous organisations (DAO).

“For businesses, these reforms will address the ambiguity that can exist about the regulatory and tax treatment of crypto assets and new payment methods. In doing so, it will drive even more consumer interest, facilitate even more new entrants and enable even more innovation to take place,” Frydenberg added.

The number of Australians with exposure to digital assets have exceeded 800,000, growing by 63% in the past year alone. That made the licensing framework for digital exchanges of the utmost importance “to provide greater confidence in the trading of crypto assets,” said Frydenberg.

Australia looks at wholesale and retail CBDCs 

The government aims to finalise its consultation rounds on the regulatory framework for businesses that hold crypto assets on behalf of consumers by the middle of 2022 as well as appropriate taxes for such assets, and studying the feasibility of retail central bank digital currency (CBDC), said Frydenberg.

The purpose of retail CBDCs is to develop digital payments infrastructure. The most high profile example is the digital yuan which the People’s Bank of China is currently trialling and is expected to be exposed to global users at the upcoming Beijing Winter Olympics.

Marcel Thieliant, senior economist for Australia, New Zealand and Japan at Capital Economics viewed the RBA to be lagging on the issue of retail CBDCs compared to some other central banks.

Retail CBDCs have been adopted most quickly in countries such as Cambodia and most recently, in Indonesia announced it was exploring the concept, because gaps exist in their current banking systems meaning that financial exclusion is a greater issue than in developed economies such as Australia. 


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Australia’s payment system is ‘highly developed’

Indeed, according to Thieliant, this appears to be the RBA’s view. 

“It is clear that the RBA isn’t among the frontrunners when it comes to introducing a retail CBDC. The RBA is also arguing that its existing payments system is highly developed. It is also arguing that a safe CBDC may not be possible after all and that the high costs of establishing one may not be justified by demand from the public,” he said.

Separately on Wednesday, the Reserve Bank of Australia (RBA) said it has completed a year-long study on wholesale CBDC for syndicated loans, called Project Atom. The central bank concluded that the project’s proof of concept “demonstrated significant efficiency gains and risk reduction from replacing the highly manual and paper-based processes still used in these markets.”

“Aside from the potential automation, efficiency and risk benefits of digitising syndicated loans on a DLT [distributed ledger technology] platform, other potential benefits from tokenisation include the possibility of fractionalising these loans to make them available to a broader investor base, thereby enhancing liquidity in these markets,” the RBA said in a 44-page report.

RBA looks at wholesale CBDC

The central bank said it will continue its research, but did not elaborate whether it would introduce a wholesale CBDC which are far more complex than their retail equivalents. 

Whereas retail CBDCs sit within a country, the wholesale version requires coordination with other central banks, for example, Project Lionrock, which links the currencies of Hong Kong, China, Thailand and the UAE.

One blockchain expert told that a wholesale CBDC in isolation was of little value. 

“If a country wants to build a wholesale CBDC it needs someone who can accept it, it can’t just be a one-way project. If the counterparty doesn’t have the systems in place, or their central banks don’t have the systems in place it will take time for such a project to succeed.”

Australian wholesale CBDC will take time

There are also technological issues still to resolve in terms of wholesale CBDCs which the blockchain expert said could take three to five years to resolve. 

This view was backed by Thieliant, “The launch of a wholesale CBDC doesn’t look imminent,” he told

“Project Atom demonstrated the potential for a wholesale CBDC and asset tokenisation to improve efficiency, risk management and innovation in wholesale financial market transactions. The project also demonstrated the benefits of collaboration in advancing our knowledge in this area.

“The Bank will continue its research on CBDCs as part of its strategic focus area on supporting the evolution of payments,” said Michele Bullock, Assistant Governor of the RBA’s Financial System’s unit in a press release. 

Read more: Indonesian central bank wants digital rupiah to benefit real economy

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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