Hasty decisions can be bad ones. We know that.
But when does careful deliberation cross the line into procrastination?
This is the internal discussion I'm having around the Reserve Bank's consideration both of producing its own digital currency and of how it should handle cryptoassets - particularly stablecoins.
I don't envy central banks trying to handle this issue, which is an enormous one. I previously examined some of the issues I'll talk about again here in an opinion piece from 2021. Disconcertingly, not that much seems to have changed on this subject in more than 12 months since I wrote that previous article.
Let's be clear. This is the hottest of hot potatoes. Maybe I'm being unkind, but the whole issue appeared to be one that most of the powers-that-be wanted to avoid till Facebook forced everybody's hand in 2019 by casually announcing that it was going to start up a stablecoin, then-called Libra THE VERY NEXT YEAR! (This is a useful definition of a stablecoin).
That got everybody interested. But with the Libra project now seemingly snuffed out, the immediate need for central banks to be moving on digital currencies and cryptoassets seems to have gone. Maybe that's not a good thing.
Because there should be urgency.
The problem is though, and I freely concede, this is an issue that would be very easy to mess up. The ramifications of messing it up could be very messy indeed.
And of course it's two interconnected issues really. Firstly is whether central banks - including our Reserve Bank - should introduce a central bank digital currency (CBDC).
Secondly is how privately developed cryptoassets should be handled.
If we look at the original cryptocurrencies, and the grandparent of them all Bitcoin, these have actually not achieved widespread adaptation as methods of payment. "Store of value" is now the commonly used term, particularly for Bitcoin.
I get the impression, although I could be wrong, that as long as the likes of Bitcoin are not being widely used as currency, the RBNZ may be happy enough to - within reason - ignore them.
What would worry the RBNZ, I think would be development of a new stablecoin, for arguments sake backed one-for-one by 'real' American dollars and launched by a credible and perhaps well known corporate entity. (Much as Facebook originally intended.)
There's a lot to like about the idea of one coin that you can spend all over the world, instantly with no messing around over bank transaction codes and exchange rates. So, an instantly credible new stablecoin could become popular very quickly.
But there are issues. One of the very interesting issues the RBNZ raises with a stablecoin is the potential for this to undermine the country's monetary sovereignty - particularly if the coin is linked to overseas currencies. Theoretically, if enough people started using these coins it could severely hamper the effectiveness of the RBNZ's use of the Official Cash Rate to help control inflation. That's because people using NZ dollars would be directly effected by OCR moves - but those using the stablecoin would not.
So, what to do?
Then there's the problem of the banks. This for me is the real head-pounder. Successful development of stablecoins could be problematic for banks (unless of course banks get directly involved). Likewise if the RBNZ goes ahead with a CBDC this could be problematic for banks.
A CBDC would be the 'real stuff' since it would carry the same government guarantee as Reserve Bank issued cash. The digital bank balances you and I have don't have the same guarantees attached. If a CBDC is therefore issued, the likes of landlords, power companies, local authorities etc are surely all going to say, "well that's the good stuff - can you pay us in that, please". This would place the banks at a significant disadvantage.
Between the successful adaptation of a privately developed stablecoin and the widespread usage of Reserve Bank CBDCs, there's obviously potential for a significant outflow of funds from the banks.
What would be done about that?
So, there's these issues I mentioned - and goodness knows, I've just scraped the surface - and then there's such things as the attitude of the public.
The RBNZ encountered some public fear and mistrust in the round of consultation it had on CBDCs earlier this year.
People are always fearful of the new and unknown. And changes in what we spend and how we spend it seem to cause particular apprehension - and suspicion.
I'm old enough to remember the Australian-launched 'Bankcard' credit card being introduced here and the scepticism, no, suspicion, the whole idea of a credit card attracted. (Yes, really.) Someone somewhere decided that the card's stylised 'b' logo in three colours looked like '666'. Yes, that's right folks, the internet didn't invent conspiracy theories.
And it is lost in the mists of time now, but I do remember there being significant pushback to eftpos at the start. Really. Impossible as it may be to believe now, there was suspicion of this too. It took a long time to get usage rolling before suddenly it became ubiquitous.
So, the Reserve Bank does have to try to 'take the public with it' on this one. But I think equally, it does have to accept that whatever it decides, some people will be suspicious of the motives and have a carp about it.
The key thing is that the RBNZ reaches clear decisions and is very clear about what it wants.
Widespread public consultation is a sound strategy in so far as it helps with the 'take-the-public-with-it' aspect of any decision making process. But equally, the public won't itself make the decision. The RBNZ has to do that. In my experience sometimes the worst thing you can do is ask the public what it wants - because sometimes it doesn't know!
So, we can discuss things round and round, but ultimately, if we think something is important enough, we simply have to bite the bullet. Hasty decisions can certainly come unstuck - but so can over-thought decisions.
The other point is that while the RBNZ appears right now to have plenty of time in which to make decisions, the possibility that it could be overtaken by events - by a private party with a stablecoin for example - definitely still exists.
A big thing missing in all the material I've seen from the RBNZ on this subject - and there's been a lot of it - has been clear deadlines for final decisions. I think it is past the time that we needed to see some sort of indication of when there will be decisions.
What would I like to see?
Personally, I have barely handled any physical cash in the past three years, having previously being a fan of always having some folding stuff in my wallet. (Yes, that's right - think back what happened nearly three years ago and that's what prompted the change.)
For me it's a no-brainer that we need to see the introduction of a RBNZ-backed digital currency that carries all the same rights as cash - an 'authentic' digital currency.
And I think a stablecoin, or stablecoins would be a fabulous adjunct to this as well - particularly for traveling and cross-border transactions.
So, I really think we need to be pushing on now with the aforementioned two things as clearly set 'desired outcomes' and work through how we want to achieve them. And then go for it. Yes, there are problems to solve as discussed further up this article.
But the reality is I don't think it is possible to achieve a move to full digitalisation of our money without ructions. It's a big change.
By going too softly-softly and not showing clear enough intent, we run, I think, a greater risk of messing up.
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