Nigeria might soon become one of the first countries to launch its central bank digital currency [CBDC], eNaira, on 1 October. Needless to say, this has pushed other nations to consider a national CBDC too.
New Zealand has now entered the list of countries looking and trying to understand the scope of a CBDC for its economy. As per reports, its central bank is looking at several benefits offered by a CBDC, with the most important being its potential use as a monetary policy tool.
In a document released for public commission, the Reserve Bank of New Zealand noted,
“Trends in cash use and innovation in money present an opportunity for the Reserve Bank to consider broadening central bank money to include a widely available digital form. The declining use, acceptance and availability of cash in New Zealand, and emerging innovations in private money, namely stablecoins, make this an opportune time to consider a central bank digital currency (CBDC).”
While many nations have grown impatient waiting for a CBDC, the RBNZ does not mind the long process and the complexities involved. It aims to have a digital currency that would support the New Zealand dollar and could be exchanged 1-for-1 with cash.
The central bank also recognized the significant role cash plays and stated that “cash is here to stay for as long as some of us need it.” This is the reason why the CBDC could, in a way, be complementary to it.
The RBNZ also listed three major benefits of a CBDC –
1. Staying relevant with the digital future and improving the technological form of central bank money.
2. Serving as a potential monetary policy tool to offer monetary stimulus.
3. Facilitating long-term conversion of private money to central bank money for individuals and businesses.
The two major technological CBDC designs – Account-based and token-based – were also discussed in the document. While account-based CBDCs rely on conventional account-based structures, the latter is enabled by new technologies like the blockchain and public-private key cryptography.
As per the RBNZ, a token-based CBDC can be used for the automatic execution of certain repetitive payments like rent through smart contracts. It will also give way to the development of new retail payment services.
On the topic of privacy of transactions, the bank added,
“Users may want to retain full privacy in transacting, for either legitimate or unlawful reasons. Meanwhile government agencies may want to retain some traceability of CBDC balances or tokens to reduce tax evasion or avoidance, or money laundering and financing terrorism.”
The RBNZ is seeking people’s input until 6 December. However, it has not yet clarified a timeline for the introduction of a digital currency. Meanwhile, the European Central Bank recently announced a 2-year investigation period to develop the Digital Euro.