The Reserve Bank (RBNZ) is years away from deciding whether it wants to introduce a central bank digital currency (CBDC) in New Zealand.
In an update to its website on Friday, the RBNZ says it's currently in stage two of a four stage process of work on a potential CBDC, effectively the digital form of our fiat currency, the NZ dollar.
Stage two involves "exploring high level design options for the CBDC, and their costs and benefits." This should wrap-up in late 2023 or early 2024, at which point the RBNZ will decide whether to move to stage three.
Stage three would involve a more detailed design and assessment of a CBDC, plus significant stakeholder and government consultation. This stage would last several years. At its conclusion the RBNZ would decide if it wanted to actually introduce a CBDC in NZ, likely to need government sign-off. Stage four would be the introduction of a CBDC.
Stage one was the publication of an issues paper looking at the public policy case for a CBDC. This was done in 2021, with the RBNZ saying a CBDC "would be a useful development for central bank money."
As the Bank for International Settlements (BIS), the central banks' bank puts it; "A CBDC is a digital payment instrument, denominated in the national unit of account, which is a direct liability of the central bank. If the CBDC is intended for use by households and firms for everyday transactions, it is referred to as a 'general purpose' or 'retail' CBDC."
"A retail CBDC differs from existing forms of cashless payment instruments, ie credit transfers, direct debits, card payments and e-money, as it represents a direct claim on a central bank rather than the liability of a private financial institution," the BIS says.
"In contrast to a retail CBDC, a wholesale CBDC targets a different group of end users. Wholesale CBDCs are meant for use for transactions between banks, central banks and other financial institutions. So wholesale CBDCs would serve a similar role as today’s reserves or settlement balances held at central banks. However, wholesale CBDCs could allow financial institutions to access new functionalities enabled by tokenisation, such as composability and programmability."
Speaking in interest.co.nz's Of Interest podcast last year, RBNZ Director of Money and Cash Ian Woolford acknowledged introducing a CBDC would have a defensive aspect to it. That's because it would help protect NZ's monetary sovereignty, which could be threatened by private forms of digital currency and/or big technology firms. Woolford also suggested a CBDC could spur competition and innovation in a domestic financial system dominated by a handful of very profitable banks.
Meanwhile, the BIS has just published the results of a survey of 86 central banks about their involvement in CBDC work, their motivations and intentions of potentially issuing one. Currently there are four central banks that have issued a live retail CBDC being The Bahamas, the Eastern Caribbean which includes several small island nations, Jamaica and Nigeria. And the BIS says its survey suggests there could be 15 retail and nine wholesale CBDCs publicly circulating in 2030.
"Global work on CBDCs has made further progress: 93% of surveyed central banks are engaged in some form of CBDC work and more than half are running concrete experiments or working on pilots," the BIS says.
The Atlantic Council, an American think tank, has a useful website tracking the evolution of CBDCs globally. It notes China's pilot, which involves 260 million people, is being tested in more than 200 scenarios including public transit, stimulus payments and e-commerce.
*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.