With tokenisation and digital payment solutions on the rise, there have never been more options when it comes to money and payments. However, not all ‘money’ is the same and the differences can turn on a dime. Here’s a quick, clear guide to the new world of money: the different types, your legal rights, and what really counts as legal tender.
What is money?
Money can take various forms, and has throughout history –think shells, gold coins, and bank notes, to name a few. No matter the form (and whether that form itself has value), money is something that is:1
- a widely accepted means of payment
- a unit of account
- a store of value.
The form money takes may change over time, either because of inflation or technological advancements. For example, the old copper one and two-cent coins that are no longer in circulation, or the old paper notes which have now been replaced with polymer (plastic) notes.
Today, Australia has both coins and bank notes in circulation, with:
| Reserve Bank of Australia (RBA) | Responsible for the design, issuance, and overall management of Australia’s banknotes |
| Royal Australian Mint | Responsible for producing all of Australia’s coins. The mint operates independently of the Reserve Bank of Australia and falls under the jurisdiction of the Australian Federal Treasury. |
Cash is a short-hand way of referring to coins and/or bank notes, and it is quickly being replaced by other more technology-friendly, digitally enabled and easy-to-use payment methods. The RBA’s most recent triennial Consumer Payments Survey (CPS) found that the share of consumer payments made in cash had fallen from around 70% by number in 2007 to 13% in 2022.2
One of the other oldest forms of ‘money’ is deposits held at banks. With the emergence of online transactions (Web2) and blockchain technology (Web3), we are now seeing the definition of money expanding into a diverse digital landscape.
What is a bank deposit?
A bank deposit is any money that is deposited in an account (whether a transaction, savings or term deposit) issued by an Authorised Deposit-Taking Institution (ADI).
People generally think that any money deposited with the bank is theirs, but this is not the case. A deposit is a contractual relationship governed by terms and conditions between a customer (depositor) and the bank.
When a customer deposits money with a bank:3
- the depositor transfers ownership of the money to the bank
- the bank becomes a debtor owing a debt to the customer
- the bank has a contractual obligation to repay the deposit upon demand or as specified in the terms and conditions.
A bank deposit is essentially a debenture but isn’t regulated as such under Australian law due to prudential regulation. This is because any undertaking by an Australian ADI to repay money deposited with it, or lent to it, in the ordinary course of its banking business (i.e. a deposit) is expressly excluded from the definition of a debenture.4
So what does this mean? When you deposit money with a bank (either directly or via a third party like your employer paying your salary), the money in your account is no longer yours and you have essentially loaned that money to the bank. Your bank account is a digital ledger of the amount the bank owes you at any time, taking into account deposits, payments, and withdrawals.
To make money, banks routinely lend funds held on deposit to individuals and businesses. This naturally involves counterparty and credit risk — and yes, those risks are real. However, the Australian regulatory and prudential framework have certain levers to protect customers and mitigate this counterparty / credit risk:
- Only ADIs authorised and licensed by the Australian Prudential Regulation Authority (APRA) can undertake banking business – which is defined to mean both taking deposits and lending.5
- All ADIs are required to hold prudential capital from a capital adequacy perspective.6
- The Financial Claims Scheme (FCS) is an Australian Government scheme that provides protection to deposit-holders with ADIs in the unlikely event that one of these financial institutions fails. The FCS is a government-backed safety net for deposits of up to $250,000 per account holder per ADI.
Importantly, you don’t need to be an ADI if you:
- only lend money; or
- only take deposits.
Even so, these activities are often separately regulated, whether under the Australian financial services licensing or Australian credit licensing. How they are regulated will depend on the legal characterisation of the product or service as well as who is providing it.
What is a digital dollar?
A digital dollar is any representation of money held in an account-based system or processed via a payment method (i.e. not physical cash). Think things like:
- Online banking.
- Stored value facilities e.g. pre-paid cards.
- Pre-funding an account with online platforms e.g. share trading, crypto exchange
- Payments processed by NPP, PayID, different card schemes and wallets connected to virtual cards like GooglePay and ApplePay.
The legal characterisation of a digital dollar will depend on several things including:
- Who holds it or processes the payment of it?
- What are the legal terms that apply to it?
- If the legal terms aren’t clear, what representations have been made?
There is no one size fits all. Some of the above examples may be regulated, others may not. Some may be regulated from a banking perspective, while others may be regulated from a payments perspective (e.g. non-cash payment facility or purchased payment facility). This is also set to change with the pending payment reforms.
Australia, as a society, is becoming more dependent on the digital dollar and moving away from cash. There are also some new contenders, and we explore these below.
Digital dollar contender #1: stablecoins
Stablecoins are fairly new and have rapidly grown as an alternative to traditional banking and to facilitate Web3 transactions.
Stablecoins are designed to be pegged to the value of an asset to mitigate price volatility and fluctuations. Mostly, stablecoins are pegged to fiat currency like Australian dollars and US Dollars on a 1:1 basis. There are different models for holding the fiat currency backing the stablecoin. Most hold the fiat on bare trust for holders in a bank account or short-term Treasury bonds (or other highly liquid assets). But there are other structures.
We are awaiting on the payment stablecoin reforms to clarify how fiat backed stablecoins will be regulated in Australia. In the meantime, other countries have leap frogged Australia – with the United States really setting the pace and facilitating global adoption with the GENIUS Act and the SEC’s Project Crypto.
In the meantime, industry is still waiting for clarification on whether stablecoins are caught by the current regulatory perimeter and, if so, how.
ASIC released Consultation CP 381 and draft updates to INFO Sheet 225 in late 2024 to provide industry with more guidance on this. We are awaiting publication of the final INFO Sheet 225. However, it seems ASIC is minded to view stablecoins themselves as non-cash payment facilities based on its views and questions canvassed in CP 381.
We don’t necessarily agree with this and don’t think all stablecoins are the same from a regulatory perspective. It will all come down to the rights and benefits of the token and any broader facility in which the token operates.
Not all stablecoins are equal. Some may be regulated, some not. It all comes down to the rights and benefits of the relevant stablecoin. In the future, we have no doubt that stablecoins will be regulated. Based on Treasury’s consultation paper, the regulation that will apply will depend on whether the stablecoin is a major stored value facility. A major stored value facility will be similar to a purchased payment facility and will be prudentially regulated by APRA, whereas all other stored value facilities will be regulated by ASIC and client money rules are likely to apply.
Digital dollar contender #2: A tokenised deposit?
A tokenised deposit is a token minted by an ADI that represents customer deposits with the ADI. It is essentially an on-chain record of a customer’s deposits at a bank. This means the token provides the holder with the same rights as the bank’s customer (subject to the applicable terms and conditions).
Tokenised deposits haven’t taken off yet, but we suspect that banks will see these tokens as a stronger contender to stablecoins, given that it is more capital efficient, maintains traditional banking models, and doesn’t cannibalise existing revenue streams.
Project Acacia is piloting the use of tokenised deposits, and it will be interesting to see what the banks learn and do following it.7
Digital dollar contender #3:A Central Bank Digital Currency (CBDC)?
The Reserve Bank is actively researching CBDCs as a complement to existing forms of money (cash and bank deposits). Theoretically, a CBDC would be a new digital form of money issued by the RBA. There are two types of CBDCs:
- Wholesale CBDC – a digital banknote to be used for interbank settlement.
- Retail CBDC – a digital banknote that could be used by anyone.
The RBA did not find a strong use case for a CBDC8, but is further exploring the benefit of a wholesale CBDC as part of Project Acacia.9
What is legal tender and does it really matter?
What constitutes legal tender is very country specific.
In Australia:
- Australian banknotes issued by the RBA are legal tender.10
- Australian denominated coins issued by the Royal Australian Mint are also legal tender, subject to certain restrictions on how much can be paid with each coin.11
Businesses aren’t required to accept legal tender for payments of goods or services.12 However, a debt is only legally discharged if it is paid in legal tender.13
In practice, this means that if a debtor offers legal tender (e.g., physical Australian banknotes or coins within legal limits) to repay a debt owed to a creditor, the creditor is legally required to accept it as payment, and the debt is considered fully discharged once the payment is made. The corollary is that, if the creditor refuses the legal tender payment, the debtor is no longer obligated to pay the debt, because the refusal prevents them from fulfilling their legal obligation.
In practice, debts aren’t usually repaid via payment of legal tender. For example,you may repay via online banking, BPAY, PayID or debit or credit cards, and because the creditor accepts payment in this way, they cannot dispute discharge of the debt. However, it is good to know the benefits of legal tender when it comes to discharging debts.
As physical cash fades and digital payment methods surge, it’s crucial to understand the changing face of money. If you’d like further legal advice on navigating these changes, please contact the team at Hamilton Locke.
1See https://www.rba.gov.au/education/resources/explainers/what-is-money.html
2See https://www.rba.gov.au/publications/bulletin/2023/jun/pdf/consumer-payment-behaviour-in-australia.pdf.
3Foley v Hill (1848) 2 HL Cas 28; State Savings Bank of Victoria, Commissioners of v Permewan Wright & Co Ltd (1914) 19 CLR 457; Rhys Bollen “What is a deposit (and why does it matter)?” (2006) 17 Journal of Banking and Finance Law and Practice 283.
4See definition of a ‘debenture’ in section 9 of the Corporations Act 2001 (Cth).
5See definition of ‘banking business’ in section 5 of the Banking Act 1959 (Cth).
6See APS 110 Capital Adequacy.
7https://www.rba.gov.au/media-releases/2025/mr-25-18.html
9https://www.rba.gov.au/media-releases/2025/mr-25-18.html
10See section 36(1) Reserve Bank Act 1959 (Cth).
11See section 16 Currency Act 1965
12https://banknotes.rba.gov.au/legal/legal-tender/
13https://www.rba.gov.au/education/resources/explainers/what-is-money.html
