The Reserve Bank of New Zealand (RBNZ) or Te Pūtea Matua might soon adopt a digital currency. It says digital currencies pose massive benefits as a monetary policy tool.
In documents released for public consultation, RBNZ is exploring the possibilities of adopting a widely available digital currency — a move inspired by emerging money innovations and cash use trends across the world.
The documents imply New Zealand is rife for a central bank digital currency (CBDC). Citing emerging innovations of Stablecoins and declining acceptance, availability, and use of hard cash in the country as key reasons for a CBDC adoption.
CBDCs are complex and involve a multi-stage approach
Developing a central bank’s digital currency is time-consuming and an expensive affair. Granted, the whole process is complex and comprises a multi-stage approach.
But despite all these, New Zealand’s Reserve Bank still favors the CBDC idea.
The documents further revealed the digital currency won’t replace the New Zealand dollar but complement it “as a single unit of account”. So, residents will exchange digital currency with cash. After all, “cash is here to stay…” adds the documents.
The Reserve Bank hints a CBDC will support the role of central bank money. How?
- Converting physical cash into a digital currency (that the central bank controls) safeguards the long-term convertibility of private money into CBDCs.
- Improved CBDC technology remains relevant even in the digital future.
- Issuing a digital currency as a monetary policy tool can either bear interest or provide a monetary stimulus for the Reserve bank.
New Zealand’s digital currency adoption can help the country participate in international events that front CBDCs as a means for enhancing cross-border payments. A virtual currency can also improve payments’ efficiency and resilience in New Zealand.
Central banks globally exploring crypto adoption possibilities
European Central Bank is among the many other central banks across the world exploring possibilities of unveiling a virtual currency.
However, RBNZ said CBDCs can pose a challenge. So, countries should time to consider the risks before jumping on the bandwagon.
As with all forms of virtual currencies, CBDCs should comply with relevant laws and regulations, maintain data privacy, and withstand outages and cyber security risks.
The Reserve Bank added that CBDCs can potentially innovate and enhance competition in the money and payment ecosystem. But it can stall other money innovations.
RBNZ is consulting the public on adopting the CBDC idea until December 6th. But it didn’t divulge information regarding the official unveiling of the digital currency.
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