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Reserve Bank to consult on, and test the perceived benefits and challenges of, a central bank digital currency

Reserve Bank to consult on, and test the perceived benefits and challenges of, a central bank digital currency

The Reserve Bank will publicly consult on the public policy cases for a central bank digital currency (CBDC), as well as testing the perceived benefits and challenges of introducing one.

In its Statement of Intent for 2021 to 2024, the Reserve Bank says it's investigating the future of money, including the need for digital money issued by the Reserve Bank to the general public, being a CBDC.

"A CBDC could be complementary to cash and would provide many of the benefits of cash. It could also provide digital fiat money and ensure the role of fiat money is preserved into the future. We will consult the public on the high-level public policy cases surrounding CBDC and develop a work plan to test the perceived benefits and challenges," the Reserve Bank says.

"We’ll likely be announcing a timetable for that work in the next week or so," a Reserve Bank spokesman told interest.co.nz.

These comments come after Christian Hawkesby, Reserve Bank Assistant Governor and General Manager of Economics, Financial Markets and Banking, in May said the Reserve Bank is among dozens of central banks actively researching central bank digital currencies.

"We have a money and cash department which is in part dedicated to thinking about things like that. So we're working on it and we're planning to say more about it through the course of this year," Hawkesby said.

Potential benefits of CBDCs touted include financial inclusion, payments stability, efficiency, and assisting with monetary policy implementation. (You can see more on CBDCs here).

Meanwhile, the Reserve Bank also says digital innovation in money by the private sector brings new opportunities and risks to the money and cash system.

"Opportunities could include greater convenience and efficiency, but risks could include undermining public confidence in the money system, risks to financial stability or risks to our ability to set monetary policy. Our work on stewardship will therefore consider whether we have sufficient regulatory tools to meet our objectives and manage the risks to the money and cash system."

The Reserve Bank's recently created money and cash department is responsible for the production and distribution of bank notes and coins, plus evaluating broader policy issues associated with the future of money in New Zealand. The Reserve Bank last year named Ian Woolford, who has worked at the central bank for 30 years, head of its money and cash department. 

"As the steward of money and cash, we ensure that policy, regulatory and operational settings support the performance of fiat money now and into the future. Digital innovation and the declining use of cash create risks that fiat money may not perform its two vital functions effectively, while other forms of money may not yet be valid substitutes. We ensure fiat money adapts to these challenges and continues to meet the needs of the public, and support a stable financial system and prosperous and inclusive economy," the Reserve Bank says.

It says the cash system as it currently is isn't sustainable in a world where cash is used less and less.

"Ensuring sustainability requires either a series of changes to the cash system or a transformational redesign of the entire system. To consider what change is required and our role in this, we will undertake a broad and strategic review of the cash system," the Reserve Bank says.

"The objective of the review will be to ensure that the physical and business arrangements for cash distribution are efficient, resilient, lower carbon and set up to meet the public’s needs now and into the future. The review will also take into account the public benefits and the increasing cost and efficiency challenges of providing cash."

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38 Comments

Just do it.

We need a digital legal tender for the general public.

11
up

Why?
So they have full control over you and your choices?
Cash gives you freedom. Digital and it's all over.

17
up

Yup, presumably this CBDC will combine the worst of both worlds - the ability to devalue the currency at will, and the ability to track everything you spend it on, restrict your purchases, and even bar you from society.

Agreed. There are some telling sentences in there:

"and ensure the role of fiat money is preserved into the future."

"Ensuring sustainability requires either a series of changes to the cash system or a transformational redesign of the entire system."

So yes to fiat, no to banks issuing it?

We've already got one - it's called the NZ$. For all intents and purposes it is fully, but not only, digital now. Why do we need another digital currency?

"Reserve Bank to consult on, and test the perceived benefits and challenges of, a central bank digital currency"

exactly , it seems to be weird to see the words "Central" and "digital currency" in the same sentence. What is the point if they will be able to print it at will the same way they do with NZD

It seems that the RBNZ team doesn't have an original bone in its body. No doubt they're just following all the noises from their peers in the U.S. and Europe. When Adrian Orr burst on the scene, he was all expressive language and showmanship. Now he's just a meek shell towing the line.

At least the CCP has put its money where its mouth is. No public consultation or virtue signaling necessary.

UN wants to do away with hard currency.

So if the government wants to freeze your accounts they can?

money used to be a tangible thing but now we are losing our grip on it,gone are the bankbooks,chequebooks and piggy banks and it will soon be in the cloud and beyond our ken,to be controlled by a few high caste individuals.

I haven't really been following the CBDC thing, but doesn't this kill banks? I only keep my money in the bank to prevent someone from stealing it. Presumably any CBDC solution would be secure enough that only I could access my tokens, so I wouldn't need to.

..your tokens may expire. Your tokens might get ring fenced for certain spend categories. The debate has been online for sometime. Much more to this issue than meets the eye.

Agreed - there is more debt extant than underwrite - something's gotta give.

And some of them will know it. Not many, but.....

I haven't really been following the CBDC thing, but doesn't this kill banks?

Theoretically you're correct. Who actually holds the reins of power is a difficult question. Personally, I think the commercial banks call the shots in NZ (RBNZ is a just a dancing puppet that pulls the levers). Each regime is different. Remember many of the banks in Europe and Japan are effectively superfluous. As businesses, they're broke and can't really lend (well not like in NZ and Aussie with the bubble). They spend their time chasing whatever yield they can find.

Perhaps they could stop bank credit masquerading as legal tender.

I agree just do it, we transact digitally almost all the time. This change will allow us to transact directly with each other (as per the lightning model that was explained to me here recently) using disintermediated, block-chain backed, stores of digital currency in digital wallets that we can use to settle directly with each other.

This will effect our current, somewhat deceptive model, where banks are required to have some measure of deposits to leverage into new lending but it really will simply mean the removal of this already unnecessary policy.

This change will allow us to transact directly with each other (as per the lightning model that was explained to me here recently)

CBDCs don't apply to the lightning network. The network is a layer on the BTC blockchain protocol to enable practical utility. CBDCs can work on blockchain protocols, but they don't have to. By the way, you don't need CBDCs for P2P transactions. The function already exists like with XRP or Strike.

We won't be transacting directly with each other. RBNZ will take the place of banks. No privacy from the State. Also, the idea that banks need some measure of deposits has been well-debunked. True foresight and leadership would be engaging with something like Cardano -- re-imagine our financial operating system, and get off this debt-based dystopia.

Agree. Cardano is more focused on the developing world where it can make a difference. The developed world seems too far gone when it comes to creative destruction.

So the big difference with Bitcoin, and the second layer Lightning, is that it is not controlled by anyone, is peer to peer with no third party involvement, and has psudoanonymous public addresses. It also has a set monetary policy that can not be changed, with a finite amount of coins available.
A CBDC on the other hand is not only an extension of the fiat system, but actually a lot worse. It is not a distributed blockchain network, but a privately controlled database rather than a decentralised system. So the government that runs the system will track every single piece of activity directly, as they control the whole system. If a blockchain is privately controlled, then it is just an inefficient spread sheet/database because one entity is in control of it anyway. On top of this, each individual coin will be tracked. Oh Jimmy got his $50.00 UBI and gave this this and this to these people, who then spent it on this at the supermarket. On top of this, rules can be implemented on individual coins, such as this $5 expires in 2 weeks so you have to move it.

We already have a digital $ that we can send back and forth to each other for free, but the big difference is they are just numbers, not individually tracked. If I have 100 in my account and I add another 100, I now have 200 indistinguishable $ in my account. What they aim to do is remove cash so there is no untraceable means of exchanging value between people, that they cant stick their nose in and hold against you. And we all know that innocent until proven guilty is a load of shit. No point being "innocent" if all, i repeat ALL, of your monetary value is frozen. This is why we need an uncontrollable opt out system which is Bitcoin.

On one hand the RBNZ is up against it here. There's next to no blockchain devs in NZ so in all likelihood they'll hire someone like IBM to deliver the project. They'll make a complete hash of it like they always do with their enterprise grade systems which do everything but not one thing well. Bearing in mind if the currency is blockchain based once released it can't be altered without a hard fork, so they'll spend forever deliberating whether they've got the utility right or not which will delay delivery as they kick the can down the road. During that time the mostly unregulatable crypto space will move ahead leaps and bounds at breakneck speed at twice the adoption rate of the internet.

On the other hand this is an absolute panacea for them. The only way the RBNZ can force people to use the DNZD in an open crypto ecosystem is to build a closed ecosystem they control and then shoulder existing debt holders with it. There's a school of thought out in the crypto space that CBs are going to allow retail banks to fail and then use DCs to co-opt their customers into debt slavery under the new digital currency in such a closed system. Obviously this will be a complete financial panopticon, and all Orwell's nightmares rolled into one.

Bitcoin is freedom money in this regard, completely outside of the control of any individual or organisation. Although it does have it's own transactional privacy issues as being a distributed public ledger every single transaction will be traceable.

Both these factors are likely to drive a lot of people to privacy conscious tokens like Monero, but it won't stop BTC being the base layer across the whole ecosystem. I'm actively working to organise my affairs so I'll have the choice to never have to use a CBDC. I can't think of much worse.

There's next to no blockchain devs in NZ

Not necessarily true Ezy. The Centrality guys have been around for a while. Good people.

Both these factors are likely to drive a lot of people to privacy conscious tokens like Monero,

Privacy coins are under the most threat from the ruling elite according to Stephan Livera. I think he makes a good point as this is the easiest target for them (you need popular support to ban things). You can't ban the likes of BTC because I think you'd have a popular uprising against govts. Not so much Nu Zillun' but people would not stand for it in the U.S.

Had a conversation with 2 older ladies last week who were approaching retirement age…. had no idea that CBDC’s were being planned or even what they were…. How many NZ’ers have any idea what they are?

Did they know what online banking was?

Very few. But this is where the technology adoption curve is important. Adoption drives ease of use which drives adoption in a never ending cycle. Layer 1 is chalk and cheese compared to layer 10 which is where most people will interact. By the time it is implemented you will be able to make a transaction on every platform you're already on. Sms, Instagram, email, your banking app, almost anything that can consume a qr code/hash string.

Well start with how many people know what Bitcoin is.....maybe 10-20% of NZ pop if I am being generous.
And from there they actually have to have any sort of interest in the Crypto world...maaaaybe 5%
And then they have to keep up with government long term planned projects that are a few years down the track, I would say maybe 1% and thats still being generous.
Considering NZ is basically at the bottom of this chart https://www.statista.com/statistics/1202468/global-cryptocurrency-owners...
5.1%, survey early 2020 and a fair bit has changed since then so you could easily double or triple those stats.

Don't read too much into the Statista research. It was run using dodgy online panels. The data surrounding crypto ownership NZ could be correct, but a large MoE.

From the most transparent government

Has the potential to eliminate retail banks, competition for interest rates and other services. A monopoly.

Competition between NZ banks is largely a fiction anyway. Oligopoly. And imagine if they couldn't lend money into existence to the extent that they do. Would be a whole different ball game.

I wouldn't want to hold a currency that RBNZ could depreciate so, however I suspect that the main reason for a CBDC would be to retain the ability to inflate the money supply.

So you don't hold/use NZD?

Can't wait for the President Ardern NFT airdrops to sell onto unsuspecting Guardian readers.

Can't be worse than ex currency-traders (unproductive creamers-off) getting into politics and putting their shoulders to the snowball.

Supported by the suspect - not sure they read much, but...

Not a mention of Bitcoin.I wonder why?
Perhaps it’s time for the Reserve Bank/NZ government to acknowledge the inevitable and formerly recognize BTC as legal tender within regulated guidelines and offer the public a truly decentralized currency that cannot be manipulated by central banks and is available to all.A central bank issued digital currency offers none of the decentralized benefits of bitcoin.It is essentially fiat money in a digital form,nothing more,

Why would they want a currency they couldn't manipulate? That's the RBNZ's raison d'etre. They might as well shut up shop.

Thank God for Bitcoin.