At last week’s AFR Crypto Summit, Assistant Governor (Financial System) of the Reserve Bank of Australia (RBA), Brad Jones, delivered a speech exploring the future role of tokenised assets and money in Australia’s future financial system and the potential economic benefits.
Historical Lessons
Mr Jones highlighted the co-dependence of commercial and monetary systems throughout history, drawing parallels between the chronic shortage of high-value coinage in China’s Song Dynasty and the challenges faced by European merchants during the Renaissance era. In both cases, new technologies, such as paper money and the printing press, led to innovative solutions for facilitating trade.
Mr Jones emphasised that the interdependence between commerce and money continued to drive progress. The industrial revolution, which fuelled global trade expansion, was preceded by various financial and monetary innovations:
Among [those innovations] were novel forms of money like bills of exchange, alongside new types of financial infrastructure and intermediaries – think of the double-entry book-keeping administered on paper ledgers by the Medicis of Florence. The socio-economic forces unleashed in this period were immense: the corporation was born, capitalism flourished and the new merchant class became a political force. Turning to the computerised age of more recent decades, the dematerialisation of finance saw paper-based forms of assets, money and record ledgers give way to electronic variants. This fuelled efficiencies that must have seemed unimaginable half a century ago.
Mr Jones noted that the two-tier monetary system comprising the central bank and commercial private banks, had proven to be highly effective in combining the strengths of public and private money. This is where “tokenisation” comes into play, presenting new opportunities for Australia’s financial system.
Tokenisation and Its Possibilities
Mr Jones identified a number of potential benefits of tokenised assets, comparing them to traditional physical assets and electronic assets as shown in the table below:
