New Zealand Central Bank Has Started Working On Its Central Bank Digital Currency (CBDC)

The Reserve Bank of New Zealand (RBNZ) is exploring the possibility of introducing its own Central Bank Digital Currency or CBDC. The central bank is seeking public input on the idea until Dec. 6, in response to digital innovations towards money transactions.

Two papers released on Thursday titled "The Future of Money – Stewardship" and "The Future of Money – Central Bank Digital Currency," explains the bank's viewpoint of possibilities and hurdles associated with issuing a CBDC. The paper focuses on the advantages and disadvantages, costs and benefits, and risks and opportunities of publishing a CBDC. 

Christian Hawkesby, assistant governor at the RBNZ, said, "The potential for a Central Bank Digital Currency to help address some of the downsides of reducing physical cash use and services is something we want to explore for New Zealand."

The document states, "Trends in cash use and innovation in money present an opportunity for the Reserve Bank to consider broadening central bank money to include a widely available digital form." Moreover, it adds, "The declining use, acceptance and availability of cash in New Zealand, and emerging innovations in private money, namely stablecoins, make this an opportune time to consider a central bank digital currency (CBDC)."

The development of a CBDC requires extended timelines due to various complexities. It also involves a multi-step approach. However, the concept is highly favoured by the central bank.

Stating the benefits of CBDC, RBNZ said It would support the New Zealand dollar "as our single unit of account" and be exchanged 1-for-1 with cash, it said, adding "cash is here to stay for as long as some of us need it." It also added a digital currency would empower individuals and businesses with the possibility of converting privately issued money into a digital form of central bank money. Simultaneously while the bank goes through technological advancement to guarantee CBDC remains consistent in future.

A CBDC would also improve the performance of domestic payments and flexibility, which will allow New Zealand to take part in global initiatives that use CBDCs to improve international payments. Furthermore, CBDC could facilitate the automatic execution of specific actions like rent or bill payments through smart contracts, thus defeating the need for manual or third-party involvement. A token-based CBDC could also support the development of new retail payment services, the bank added.

Same time RBNZ says CBDC is not without challenges and requires careful consideration or would have repercussions like "cyber security and data privacy risks." Also, it would need to comply with all relevant regulations as well.