Banking News

New Zealand launches CBDC inquiry

new zealand dollar currency

The Reserve Bank of New Zealand announced a public consultation about a potential retail central bank digital currency (CBDC) and published a report on the topic. 

As with many other central banks, it says it is not planning to issue a CBDC in the near future but wants to be prepared if the need arises. It also isn’t looking to replace cash.

“We want people to know that the case for keeping cash is well understood and accepted by the Reserve Bank. Cash is here to stay for as long as some of us need it,” said Assistant Governor Christian Hawkesby.

However, cash usage continues to decline. In 2020, 9% of New Zealanders cited cash as their main payment method, down from 12% in 2019. Cash distribution is becoming more fragmented, making it harder to find ATMs. In July, the Reserve Bank published a report about decling cash usage and announced plans to explore a CBDC.

Apart from declining cash, the Reserve Bank is concerned about a potential threat to the sovereignty of the New Zealand dollar should a global stablecoin such as Diem become widely used.

Despite being an advanced economy, financial inclusion is also a motivator for issuing a CBDC. Whether that’s for those who are reliant on cash or face hurdles in opening bank accounts. One of the key reasons for opening a bank account is identity. The central bank hopes that a CBDC might support the adoption of RealMe, the country’s online identity solution and it’s also developing a digital identity trust framework.

With a CBDC as a potential monetary policy tool, New Zealand would be willing to consider having an interest bearing CBDC either to pay interest or even impose negative interest rates. 

Meanwhile, in China, addressing the dominance of online payment providers was one of the top motivations for introducing a CBDC. New Zealand says there’s a lack of competition in the payments sector and high barriers to entry which reduces the motivation to innovate.

A final reason cited for CBDC adoption was enabling New Zealand to participate in cross border CBDC trials which aim to slash the costs and speed of international payments.

Public feedback is being sought until December 6. After this, the Reserve Bank intends to prepare and publish a summary of responses by April 30, 2022. 

Further CBDC developments are taking place in the African continent with Nigeria’s launch of its eNaira website, the CBDC pilot that is due to start tomorrow. In Asia, Bhutan has also recently announced a collaboration with Ripple to pilot a CBDC using Ripple’s private ledger.