September 23, 2023

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New Zealand Central Bank Starts Work on Digital Currency

High-tech lens is scanning a stream of binary data. Digital illustration.

Adrian Orr, Governor of the Reserve Bank of New Zealand, announced that Aotearoa’s Central Bank (iTe Pūtea Matua) is commencing proof-of-concept design work for a Central Bank Digital Currency (CBDC), taking into account the public’s feedback received during a recent consultation.

A CBDC would provide a platform for economic and financial innovation, including competition in the payments and settlement sector, cross-border transfers and financial inclusion and capability building tools.

“We must decide how best to use digital technology to modernise central bank money, while we continue to ensure cash remains an option for those who need it. An innovative approach is needed to support a more efficient and resilient cash system, and the changes required are potentially far-reaching,” Orr pointed out.

Orr was confident that the country had the tech capacity to deploy a Central Bank Digital Currency (CBDC). He acknowledged that such a currency, at the very least, should be easy to use, ensure privacy is maintained and be free of major risks – cyber or operationally. He felt that these were benchmarks that would inspire trust and drive wide usage.

The critical initiative empowered by public involvement is something New Zealanders hope could speed up the digital adoption of digital currencies and other forms of digital cash instruments – cryptocurrencies and NFTs including.

Digital currencies and cryptocurrencies may be operating on the same digital platform, but these cash alternatives are distinct from one another. In one sense, they can be worlds apart. While digital currencies are electronic forms of fiat money officially sanctioned by a central bank (and can therefore be used in an everyday setting without issue), cryptocurrencies are a store of value that is protected by encryptions and are not government-sanctioned. In short, cryptocurrencies can come with a lot of risks.

Orr acknowledged the public’s desire for discreetness and the importance of privacy in their money as seen in the consultation. “We believe that a CBDC can be designed in such a way that privacy can exist alongside design features that make it hard for central bank money to be used for nefarious or illegal purposes. The emphasis we place on privacy reflects the fact that the CBDC design will be driven by a broad community, rather than specific commercial, interests.” the Reserve Bank Governor detailed.

The work itself will be a multi-stage and multi-year effort. Currently, no decision has yet been made on what form of CBDC was right for New Zealand.

What makes this move towards a digital economy comprehensive is the public consultation. This comes in the form of an issues paper, Future of Money – Cash System Redesign (Te Moni Anamata – He Whakahou i te Pūnaha Moni) and shall close on 7 March 2022.

Already about 190 submissions have been received so far. The paper sets out issues facing the cash system, largely driven by falling transactional cash use and raises options including requiring banks to offer cash services and retailers to accept cash.

From the looks of it, New Zealand is relying more and more on technology to boost its local economy. Recently, the government has launched NZ Tech Story, allocating as much as $1 million to a marketing campaign that would showcase its technological prowess to the whole world,  as reported on OpenGov Asia.

The move is bound to attract both fresh talent and inject timely global investments to the over 5-million-strong Pacific nation. In effect, by putting the limelight on its tech capabilities to the world, New Zealand hopes to boost its up-and-coming digital economy in the long run.

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