By Gareth Vaughan
The Reserve Bank of New Zealand (RBNZ) considering launching a central bank digital currency (CBDC) is in part a defensive move to protect it and NZ's monetary sovereignty, says RBNZ Director of Money and Cash Ian Woolford.
Woolford spoke to interest.co.nz for the first episode of the Of Interest Podcast, where we delve into big issues and new developments in the economic and financial worlds.
The RBNZ is one of dozens of central banks around the world considering introducing a CBDC. A few, including those of The Bahamas and Nigeria, have already done so. Others, including the People's Bank of China and Sweden's Riksbank, are in the pilot phase.
A CBDC is the digital form of a country’s fiat currency. That means an RBNZ issued CBDC, like the physical NZ dollar, would be a liability of the RBNZ, backed essentially by trust in the Government and its institutions. By law the RBNZ is the sole supplier of NZ banknotes and coins, with this being a key raison d'être for the central bank.
Although most financial transactions are already done electronically, Woolford points out these are done using digital forms of private money.
"Most people use private money in the form of their bank accounts with registered banks in New Zealand. I guess the main point of difference is you are effectively taking a credit risk with your bank, so your claim is on the bank. Whereas with a central bank digital currency your claim would effectively be on the Government, which typically and is the case in New Zealand, has a higher credit rating than private institutions," Woolford says.
He says the RBNZ hasn't yet made a formal decision on whether it will launch a CBDC or not, and it's likely to be years not months before it does. Nonetheless he says the RBNZ considers that a CBDC "will make sense."
In a world of cryptocurrencies, stablecoins and big technology companies such as Apple, Facebook and Google pushing into payments and financial services, Woolford acknowledges there's a defensive aspect to the RBNZ looking to launch a CBDC.
"Yes, I think that it's fair to say that to a degree this is a defensive play," Woolford says.
"I don't want to come across as too defensive, but I think it's hard to argue otherwise if you are interested in protecting monetary sovereignty, and that threat [to it] could come from private forms of digital currency [or] big tech firms."
"Monetary sovereignty matters in that it enables us to operate monetary policy, to set interest rates that reflect the state of the New Zealand economy," says Woolford.
"If you don't have monetary sovereignty you end up usually, and you've seen this in a number of countries around the world, being dollarised. So the citizens lose confidence in their own currency...Dollarised typically refers to the US dollar, so they lose control of domestic monetary policy."
"It's really important first and foremost that New Zealand retains monetary sovereignty. Monetary sovereignty can be undermined or threatened through a number of channels. One channel, for example, could be the advent of cryptocurrencies or stablecoins. People choosing not to transact in the New Zealand dollar whether it's a private form of digital currency like a stablecoin, or whether it is using another country's central bank digital currency. So effectively you'd be dollarised," Woolford says.
"Dollarised" refers to when a country begins to recognize the US dollar, which is viewed as the world's reserve currency, as a medium of exchange or legal tender alongside or in place of its domestic currency.
In the podcast Woolford talks in detail about the RBNZ's work on a CBDC, including what introducing one would mean for cash and privacy. Among other things, Woolford also talks about how the RBNZ believes a CBDC could bolster competition and innovation in the NZ financial system, and the potential for a CBDC to reduce or eliminate the role of banks.
74 Comments
CBDC - this is what it's all about... it's 100% coming and sooner than we may think. The only way there will be change is through pain & fear...
My bet is one of these Govt cash hand outs/subsidies will be CBDC, you'll have to register to receive it. It will grow from there...
Nothings happened in regards to using Covid to adopt a “new system” some temporary measures were put in place. When the next pandemic occurs there will just be more cynicism less trust and poorer compliance.
The populous will adopt a new monetary system when it provides them more convenience and marketeers can skim a little cream selling it.
Yesterday I passed a busker who was playing a saxophone masterfully. I would have given him a fiver, but I haven't carried cash for ages: I pay for everything by card.
I wish the Reserve Bank would just get on with it, and allow us all to have CBDC accounts directly with the RBNZ: I could transfer my fiver directly from my phone to the busker's.
Westpac, I'm told, has issued its own digital currency, the Buck, and I've read of another private one, called Dosh. I've not yet met anyone who uses either.
Anyway, I don't want a digital currency issued by a trading bank or a dubious private company. I want a CBDC directly from the Reserve Bank to my phone, or a credit-card-sized digital wallet. Who needs private banks, except people who want to borrow from them?
Here's a little chart to illustrate how well these crooked central bankers are managing the value of the money they so badly want us to use.
Great.
Ok so you're a human, you want to earn and spend money in an economy over the last 100 years. What is the alternative to operating in fiat, and how easy is it to use?
Any kid buying used comic books should be aware that over time, things get more expensive.
The alternative to operating in fiat money is operating in commodity money, with the commodity backing typically being gold. For the typical human it works just as easily, but central banks and governments find it more difficult to pilfer.
Most things should actually get cheaper over time as productivity improves. Isn't it bizarre no matter how much more efficient and resourceful we become still nothing ever gets cheaper.
Do you have any examples of gold backed economies that have resulted in superior outcomes?
Some things have gotten cheaper, some more expensive, some have stayed the same, some have become far more advanced, some lower quality. Processes get more efficient, but input costs may rise.
Probably the more pertinent question for the individual is what is the value of my effort is worth, relative to the wider economy. Most people's assumption is it should usually be worth the same or more. I'm less sure.
So the gold standard was working really really well and they just abandoned it?
Who valued gold?
Who set the rate of the dollar relative to gold?
Was there always enough to go round? I.e. could an economy produce or acquire enough additional gold to allow for economic growth?
Yep every time there is a crisis or a government wants to look good for re-election they turn the money printer on and debase the currency further which is why we now have stupid levels of inflation after the last 2 years of printing. digital currencies will be adopted but not from the banks
That is why the world collectively converged on the gold standard, because it was the hardest form of money available to humans due to natural physical limitations. So it could only be inflated at about 2% per year.
The problem however is also its physical properties, namely its weight (portability) and lack of divisibility (why we used to have silver coins).
So this lead to the issuance of paper money that was backed one to one by supposed gold stored in a vault.
This obviously led to centralisation of gold deposits into central banks. Now because people can not resist temptation, naturally they started printing more paper claims then there was actual gold. Hence why the USA had to go off the gold standard in 1971 when the european countries started delivering paper USD and demanding their gold back. THey didnt have it so they broke the peg and kicked off the 50 yea fiat money exsperiment we are living in now.
This is where Bitcoin comes in. You can argue it is a commodity as it takes electricity as an input to produce bitcoins (the tokens). It is digital so it has none of the physical limitations of gold, and because it is decentalised and trustless, there is no one that can print more of it and devalue your holdings. Ergo if you hold 1 BTC you have 1/21m of the total supply that will ever exist (fully diluted suply).
The kicker is that it avoids the need for centalised control, as it is costless and efortless for people to hold their own keys and be their own bank, so why would anyone want to use a government currency that is backed by nothing other than empty promises?
I think the future a Bitcoin standard, where countries issue their national currency that is pegged to their Bitcoin reserves, and they all trade against each other based on their trustworthiness and rate of devaluation. Hence why some states and cities (melbourne soon form the news I saw yesterday) have started allwoing people to pay their tax in Bitcoin.
Only if such a transaction will be approved for you, as an individual, by the RBNZ and if your social credit score allows. Otherwise it will be declined.
If you have been late paying your rates or you have excessive debt, your choice to pay the busker will be removed and you may be docked a social credit point into the bargain for reckless thoughts.
I'm not joking. This is exactly how it works in the end after they have suckered people into accepting it. This has been in opperation in China since 2017.
When the alternative is flooding the entire market with credit, the powers that be will get the political mandate to stimulate individuals digital wallets directly in times of need. It might just take another few years.
Thirsty? Here's a token for a drink. We choose how healthy and what flavour. Oh, and you have to use it in 24hrs, you cannot keep it long term.
Probably a bit OTT, but you can see the potential.
Exactly, and quite probably; CBDCs are a control mechanism that represent everything cash isn't. They are pushed by the World Economic Forum in their Agenda 2030 as a means to remove any choice from complying with government regulations. CBDCs are the linch-pin of the "social credit" scoring system. While cash represents total freedom to engage in an economy, CBDCs represent the total opposite. Expect to find a lot of articles sponsored by government on how CBDCs will be great for this or that, but it is a dupe. And we are not invited to choose.
Yes indeed, see best evidence YT channel review of Omaravas paper. How about helicopter money or some debits to keep the economy steady.
Eg Sorry your devices recorded too much movement during lockdown no helicopter cash for you.
https://scholarship.law.vanderbilt.edu/vlr/vol74/iss5/1/
A coin that loses 90% of its value over 30 years.
"Dollarised" refers to when a country begins to recognize the US dollar, which is viewed as the world's reserve currency, as a medium of exchange or legal tender alongside or in place of its domestic currency.
The ledger only based global Eurodollar has undertaken that function for multiple decades and dwarfs the domestic USD in size and reach.
Among other things, Woolford also talks about how the RBNZ believes a CBDC could bolster competition and innovation in the NZ financial system, and the potential for a CBDC to reduce or eliminate the role of banks.
I very much doubt Woolford and his type have the authority to engage in such endeavour.
An RBNZ CBDC backed by NZ government debt, as is circulating currency, is one thing, creating credit is an altogether different function.
Banks don't take deposits and they never lend money. They are in the business of purchasing securities. When one gets a bank loan, the loan contract is a promissory note. The bank purchases that contract from the borrower. Now the bank owes the borrower money and it creates a record of the money it owes, which we call deposits - source
Will the tax payer be willing to stand behind the State "deposits" created for one third of wealthy households to speculate in the residential property market?
Will central bank monetary policy agents' decisions be compromised/captured by previous good or bad lending practices?
It should not be forgotten: Rising interest rates could see government suffer a $5 billion loss from the Reserve Bank's QE programme
To be fair, during the inverview Woolford is highly critical of our 'highy profitable' electronic payment system, and suggests that the CBDC could stimulate some helpful competition in this space. But, he doesn't infer that RBNZ would get into loans.
I think RBNZ absolutely should get into loans of course - nothing wrong with a 25-year mortgage fixed at 3% for the term if it is used for new affordable / social housing. Why would a central bank with a 1% to 2% long-term inflation rate not offer a low risk mortgage 100 to 200 pts above?
Sigh. "defensive play". Yet another useless justification for a crypto existing.
Crypto has become a stupid contest - ironically amongst very intelligent people.
Start with something that makes using money easier/cheaper/better/faster and work from there. People might actually use it. In actual daily life. Wouldn't that be a breakthrough...
The ease really comes from adoption. Fiat currency wherever you're residing is still by far the best solution, because you can use it almost anywhere.
Technology can also overlay it, so we have cards, paywave, online etc. That comes at an additional premium, if someone can offer as convenient a service at a cheaper price it'll win out, but I can't see it anytime soon.
A central bank derived digital currency is a slightly different beast than traditional crypto, because potentially the state is underwriting its value.
I don't get it. The current method of Exchange works just fine. Why swap? The govt going to pay my whole salary?
Most people who want a crypto say it is because of avoiding central manipulation, but any central crypto would end up just the same eventually. And most people just want to use the most convenient method.
Current Fees could be legislated against if that's a problem, and any new system would have massive costs to run, keep modern, maintenance, that would be paid by govt? (taxes).
And how is this system integrated into a world payment system? (cost to maintain).
Yes crypto is all a load of shit. Hence BITCOIN not crypto.
Bitcoin fixs the fiat problem of haveing a currency that is backed by government promises and them being able to create value (USD) for zero cost. Money should store your time and energy over space and time.
Bitcoin fixs this by having a hard capped supply of 21m that no one can change. It is instantly transportable around the world with final settlement and no middle man that can censor your transactions.
And then you have second layer scaling solutions like lightning that allow instant transaciton times with zero fees simply by scanning a barcode. Adoption will come, and it will be a hard fight to take monetary control away from a small group of powerful people who literally steal our money and time by devaluing it. Monetary inflation just makes any money you hold purchase less. Infaltion is a government soft default and theft from its citizens.
If you don't have monetary sovereignty you end up usually, and you've seen this in a number of countries around the world, being dollarised.
If you are Turkey, Argentina, Nigeria etc - this is a real and present danger. But, the main threat to the sovereignty and economy of these countries is taking on debt denominated in US Dollars (a recipe for disaster). For developed countries with relatively sophisticated regulatory and tax systems (that require taxes to be paid in sovereign currencies), the risk of being dollarised is miniscule.
What the CBDC is really about is the end of cash, which is coming quickly. The policy challenge here is how do you move to a digital currency without losing the benefits of cash - e.g. enabling people to be able to spend money without their transactions being traced.
What gets really interesting is the potential for the replacement of commercial banks - who basically make billions by playing a middleman role (between the central bank and the public) that technology could largely replace.
"Monetary sovereignty matters in that it enables us to operate monetary policy, to set interest rates that reflect the state of the New Zealand economy,"
This is confusing and back-to-front from RBNZ: a floating exchange rate is one of the three prerequisites for monetary sovereignty, but you can have a floating exchange rate and still not have monetary sovereignty if you’re lacking the other two prerequisites (issuing your own currency and not having substantial debt in another currency you don’t issue). I’ll listen to the interview, Gareth, but I’m intrigued as to how RBNZ thinks a digital currency will improve monetary sovereignty.
If they move to a digital dollar, they will lose control of its value even quicker than whats currently happening.
But if they dont move to digital, those who operate in both digital and the current system will be able to use the efficiency gains of digital to arb the non digital.
Its a lose-lose as and will be a slow transition from the current banking system to one that is less exploitable.
Wow tech is so amazing. Once the CBDCs are in place they can get rid of cash and force everyone to use the new digital currency, then it will be easy to set up digital IDs (linked to the growing network of CCTV cameras with facial recognition), connect vaccine passports to the system to make sure we're all up to date with our injections, and then set up a social credit system. That means we'll have a nice healthy and obedient society with no more crime, because our perfectly trustworthy government with its perfectly reliable IT systems will be able to track absolutely everything we do, naughty or good, give us a ranking, and punish or reward us appropriately. If we're really naughty, they'll be able to just stop us accessing our own money, or buying certain things like plane tickets, just like in China. Happy days!
... this government has already stripped away many of our rights & protections , under the guise of saving us from Covid19 .... correct me if I'm wrong , but the police are now allowed to enter & search our homes without notice , without a permit ... Nicky Hager knows all about that ... they ransacked his house infront of him & his kids ... and found nothing !
You're right, not only this Government but the likes of Australia and Canada the way they've treated their citizens over the past 2 years.
It is disgusting that rights and protections stripped away, the thing I can't believe is that sheer amount of people who will agree its OK to discriminate against peoples personal decisions.
Central Banks are losing their importance and creditability, it is a matter of time before is either changed or revamped.
RBNZ by engaging in digital currency is only trying to remain relevant in future.
Inflation data though indicate the extent of damage is not true reflection as everyone will vouch that in real term household spending have gone up by 30%.
Throwing dole and subsidies by government to please and retain power will only add to crisis just the way RBNZ helped the economy in pandemic .
Losing credibility, yes. Importance... theoretically no. Based on the premise that issuance of currency should be independent of government (I think so, MMT proponents would vehemently disagree...) and currency supply should be controlled in response to inflation / deflation, I think they have a role. How else do you get supply of money controlled but separate from government. You unfortunately need human control.
Widespread adoption of regulated and FDIC-insured stablecoins will rapidly accelerate dollarisation as many countries lose control of their weak currencies. Many will collapse into the strongest 1/2 dozen currencies. The people will decide what currencies they want to hold in their digital wallets. I’ll be holding as little cbdc/spycoin as possible. Peer-peer transactions with bitcoin/stable coins and bartering will be preferable. If you want to see how it unfolds, look no further to the treatment of the Canadian Truckers and their donors.
“British pound is taking on ‘emerging market’ characteristics, Bank of America says” - CNBC
https://www.cnbc.com/2022/05/31/sterling-is-taking-on-emerging-market-c…
I agree. I think once there are CBDC around then the fx market will go into a tail spin. Especially the smaller CBDCs. Market makers will play games and people will able to do a run on the bank instantly into a hard money like btc. Eventually CBDCs will become simply transactional money for paying taxes etc.
The scale of changes you are talking about are massive. This scale of money change would also likely come with other forms of social disruption, revolution Wars etc.
We already have a more or less digital currency, and we already have the means to limit its supply.
It is all about control of us the citizens and one step closer to a social credit system like China , its big governement and its being directed from the WEF through Jacinda their sock puppet. Every step they take is about making us all dependent on the state. Another move to a totalitarian state.
Meanwhile Robertson borrows and spends like a drunken sailor. The Reserve Bank are trying to rein in inflation , it wont work and we aint seen nothing yet. But the interest rate rises will nail all of middle NZ.
https://twitter.com/Galloleous/status/1533620761122205697?s=20&t=HhWanC…
Massive thread on monetary printing rates with excellent charts comparing the largest 50 fiat currencies in the world (NZD included, we are actaully one of the worst in some metrics).
Def worth the read, or at least the first few slides describing his paramaters and then flick through the charts.
https://www.telegraph.co.uk/opinion/2022/06/06/beware-dangers-cashless-…
The problem with cashless society is that it is a surveillance society. And not only can governments, banks and tech companies monitor what you have earned and spent in a cashless world, they can preemptively control it too. As Agustín Carstens of the Bank for International Settlements said at an IMF talk, a centralised digital currency gives the bank “absolute control over the rules and regulations of the use of that expression of central bank liability, and also we will have the technology to enforce that.”
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