New Zealand’s central bank is exploring the possibility of issuing a digital currency, saying the benefits it would bring include its potential use as a monetary policy tool.
“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,” the RBNZ said Thursday in documents released for public consultation.
“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).”
While developing a CBDC would require long lead times given the complexities and involve a multi-stage approach, the RBNZ said it broadly favors the idea. A digital currency should 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.”
The RBNZ said a digital currency would support the value anchor role of central bank money by:
- Providing individuals and businesses with the option of converting privately issued money into a digital form of central bank money, ensuring the long-term convertibility of private money into central bank money.
- Improving the technological form of central bank money to ensure it remains relevant in a digital future.
- Providing an additional monetary policy tool by it being either issued to provide monetary stimulus, or interest bearing.
A digital currency could also bring improvements to domestic payments’ efficiency and resilience, and enable New Zealand to take part in global initiatives that use CBDCs to improve cross-border payments, the RBNZ said.
Other central banks around the world, including the European Central Bank, are also exploring the possibility of issuing a digital currency. However, the RBNZ said a CBDC is not without challenges and requires careful consideration.
“As with other forms of digital money, a CBDC must be operationally resilient to outages and cyber security risks, maintain data privacy, and it would need to comply with all relevant regulation,” it said.
“Similarly, while a CBDC has the potential to act as a catalyst for innovation and competition in the wider money and payment ecosystem, we will have to consider the potential for it to crowd out innovation.”
The RBNZ is seeking public input on the idea until Dec. 6. It gave no indicative time-line for the introduction of a digital currency but said it would release an outline of the next steps by the end of April.