- The Reserve Bank of New Zealand released a consultation paper this week outlining its thoughts on the possible introduction of digital cash.
- The paper is the second stage of a multi-stage, multi-year process that could result in the introduction of digital currency by around 2030.
The Reserve Bank of New Zealand (RBNZ) released a consultation paper on Wednesday outlining what its particular version of digital cash might look like and asking for feedback from stakeholders.
The consultation paper, titled ‘Digital Cash In New Zealand’, is the second stage of a multi-stage, multi-year process, which may result in the launch of a CBDC in New Zealand by 2030.
The bank makes clear though that it still has not yet decided to issue digital cash—at this stage it’s exploring possible CBDC models and gauging public and industry opinion.
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Digital Cash Preserves Monetary Sovereignty: RBNZ
Unlike stablecoins, which are generally issued by private companies, New Zealand’s digital cash would be issued by the reserve bank and denominated in New Zealand dollars.
The consultation paper claims that the introduction of this kind of digital cash in New Zealand would allow the nation to preserve its monetary sovereignty in the face of emerging threats from cryptocurrencies such as Bitcoin.
If enough people start using these alternative currencies, the paper states, the NZ dollar could lose its position as the nation’s primary currency, which could mean RBNZ would lose its ability to control monetary policy through things like interest rate rises.
The paper is also quick to point out that digital cash would not replace physical cash, rather it would complement it and give people and businesses more options and flexibility when it comes to payments.
Government surveillance —one of the main concerns about CBDCs—was also addressed. RBNZ’s report says that individuals’ digital cash use will not be monitored or controlled by the government.
Why Introduce Digital Cash? What Are The Benefits?
Beyond just preserving monetary sovereignty and providing another way to spend money, what exactly are the benefits of introducing digital cash?
Advantages of the digital cash system presented by RBNZ’s paper include:
- An open platform, allowing private companies to connect to it and create innovative new payment solutions — driving innovation and improving competition and efficiency in the payments space.
- An example from the paper: a farmer who would be able to integrate his supply chain tracking system with the central bank’s digital cash system allowing him to programmatically issue invoices and receive payments from his customers by leveraging smart contracts.
- Enabling offline payments, when internet or electricity networks are down, by using smart phone based peer-to-peer payments via Bluetooth — currently electronic payment systems, such as EFTPOS, can’t process payments if they’re offline.
- Digital identity, with the paper saying “digital identity is a core function” of a digital cash system, allowing it to be used for “compliance checks and other services.”
What Comes Next?
The consultation period for the paper runs from April 17 until July 26, with the bank encouraging New Zealanders to provide feedback on all aspects of the proposed digital cash system.
Related: SWIFT to Launch CBDC Platform Following Successful Experiment
Judging by the response to the reserve bank’s tweet announcing the consultation paper, the reaction is mostly negative so far with many people not understanding how digital cash differs from current digital access to banking services and questioning the need to spend money on this kind of system.
For its part, the Reserve Bank of New Zealand says its next step is to conduct a cost benefit analysis of digital cash which it says will be available at a later date.
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