The use of digital currency for payments “remains relatively limited” while cash will continue to play an important role in society despite it’s declining use, the Reserve Bank of Australia told the House of Representatives Standing Committee on Tax and Revenue.
In a statement delivered to the Committee, in relations to its inquiry into Taxpayer Engagement with the Tax System, Tony Richards – Head of RBA’s Payments Policy Department – discussed the evolving payments system, including issues relating to digital currencies as well as the use of cash and the development of the New Payments Platform.
Digital currencies
Richards suggested that substantial increases in cryptocurrency prices over the past year are due to speculative demand and, in particular, the use of digital currencies as a means of participating in Initial Coin Offerings (ICOs). He added, however, that the use of bitcoin and other digital currencies as an actual method of payment “remains relatively limited in Australia, as elsewhere”.
Although Richards said digital currencies “do not currently appear to raise any pressing regulatory issues” in terms of the RBA’s payment policy mandate, he noted they can “serve as a means of payment in the in the illicit economy”.
“Accordingly, their use may have some implications for tax authorities and they raise more significant issues for authorities tasked with crime prevention and detection,” he told the committee.
“The distributed and cross-border nature of digital currencies like bitcoin means that regulation of the core protocols of these systems is unlikely to be effective. Authorities have therefore tended to focus on the ‘on-ramps’ and ‘off-ramps’ – that is the links to the traditional payments system. In some jurisdictions, central banks and other authorities have taken action in relation to digital currency exchanges, such as the measures undertaken by the People’s Bank of China earlier this year.”
Richards noted that the longer-term prospects for private digital currencies are ‘unclear’; however, he pointed out that the RBA has previously stated that the distributed ledger, and blockchain technologies underlying them, have potential for widespread use in the financial sector and many other parts of the economy.
“The greatest potential is likely to be in sectors where workflows involve lots of different parties with no trusted central entity, and where current practices are quite inefficient,” he said.
“Some frequently suggested financial sector use cases include correspondent banking and remittances, as well as trade financing.”
Cash transactions
Despite a general decline in the use of cash for transactions, Richards said it remains the most common payment method for certain types of transactions
“For instance, many older Australians continue to use cash for a significant share of their payments, and cash remains the most commonly used payment method at small food retailers such as cafes, restaurants and bars,” he said.
“While the role of cash in society is evolving, it is likely to remain an important feature of the payments system and economy for the foreseeable future.”
He noted that the RBA was supportive of the concept of a cash transaction limit, the possibility of which was raised in the interim report of the Government’s Black Economy Task Force, but that a limit that constrained the ability of ordinary Australians to undertake legitimate cash transactions would be “undesirable”.
Payments innovation
Richards noted that the New Payments Platform (NPP), which he described as a significant project for the payments industry, is “now in its final stages of testing and the public launch is scheduled for early 2018”.
“The NPP has been designed as a platform for innovation that will benefit end-users of the payments system – households, businesses and government entities,” he said.
“One key feature that will facilitate new services will be the ability to include much more data with a payment – up to 280 characters of data as opposed the current limitation of just 18 characters in the direct entry system. Richer data will facilitate e-invoicing and straight-through-processing, and is likely to offer enhanced functionality to Government agencies including those under the DHS umbrella. And in the superannuation industry, for example, there is currently a lot of manual processing and checking as part of making payments: the NPP could streamline and automate many of these.
“In addition, at some point after the initial launch to the public, a ‘request to pay‘ functionality will be introduced that will enable one party to send a payment request to another party. The payer will then be able to accept that request and initiate an NPP payment. This functionality could be attractive to the ATO: it could send through a request for tax to be paid following the receipt of a tax return.”