As global finance continues to evolve digitally, newer cryptocurrency products are on the rise, and central bank digital currencies (CBDC) seem to be at the center of this discussion. Australia is one of the latest countries to take advantage of the emergence of digital currencies.

The country’s plan to launch a central bank digital currency has just reached a major milestone, with blockchain startup Canvas announcing the successful use of the Australian CBDC to execute an FX (foreign exchange) transaction.

Australia Records First FX Transaction With CBDC

On Thursday, May 18, 2023, CANVAS announced its successful attempt at facilitating the first foreign exchange transaction using an Australian CBDC. The global fintech company made this known to the public through a press statement released on its website.

We are very pleased to announce that @canvas_defi has completed the first ever ‍foreign exchange (FX) transaction using an Australian CBDC as part of the @RBAInfo and @DigiFinanceCRC CBDC pilot. Press release here https://t.co/Q1YNXHP4sO. https://t.co/OHhngLw6eW #CBDCs

— CANVAS (@canvas_defi) May 19, 2023

This historically-significant transaction was executed as part of a series of pilots by the Reserve Bank of Australia (Australia’s central bank) and Digital Finance Cooperative Research Centre (DFCRC) to launch a CBDC – the eAUD. The milestone FX transaction – to trade eAUD against the USDC stablecoin – was performed between digital and TAF Capital on Wednesday, May 17.

The trade was executed on Canvas’ Connect platform, which is built on the Ethereum network. The fintech company claims the platform will provide users with confidentiality, scalability, instantaneous completion time, and cheaper transaction costs. Moreover, the blockchain firm promises to leverage the ZK (zero knowledge) Layer 2 technology to improve on the present-day FX system, which is plagued with some drawbacks, including the inability to operate 24/7 all year, expensive costs, and vulnerability to errors. 

However, Canvas’ recent exploit showcases the benefit the RBA’s CBDC will bring to traditional financial markets, institutions, cross-border payments, etc. According to David Lavecky, CEO of Canvas Digital, the eAUD, as a CBDC, has the potential to resolve pertinent issues in the foreign exchange and international remittance markets by improving transaction times, eliminating market inefficiency, lowering fees, and so on.

Canvas is only one of the 15 selected use case providers in the RBA eAUD project. Other use case providers selected by the Reserve Bank of Australia include ANZ BANK, The Commonwealth Bank of Australia, Intuit & MasterCard.

Are CBDCs Really Worth The Hype?

According to Investopedia, a CBDC is a digital form of a country’s fiat currency issued by the nation’s central bank. This digital asset is similar to cryptocurrencies, except that its value is typically tied to the country’s fiat currency.

Virtually every country in the world already has – or is developing – a digital currency. Central banks are experimenting with CBDCs, using both wholesale and retail digital currencies. This is primarily to improve their local economies and perhaps ease cross-border payments. 

Despite the shiny potential of CBDCs, not everyone is on board with the idea of creating a “competitor asset” for cryptocurrencies. According to a Financial Times piece earlier this year, “CBDCs are a huge undertaking and are not worth the costs and risks.” This article inferred that the operational costs and logistics of creating a CBDC just seem too heavy for a project with such little reward. 

That said, only time will tell whether central banks – worldwide – are making a mistake or a masterstroke by diving into the world of digital currencies.