The Reserve Bank of New Zealand (RBNZ) has initiated public consultation on the development of a central bank digital currency (CBDC) called “Digital Cash.” The consultation, which began on April 17, will last for 101 days and involve feedback from the public and stakeholders. The decision to move forward with the CBDC will be made after the completion of the consultation process. The primary focus of the New Zealand CBDC will be on retail users, including consumers and corporate entities.
The motivation behind the introduction of the New Zealand CBDC is attributed to the declining use of physical cash in the country. The RBNZ believes that the shift away from cash could pose challenges for financial inclusion, particularly for those who rely on cash transactions. Additionally, the central bank aims to provide digital cash to meet the evolving needs of consumers and to support financial innovation. The rise of cryptocurrencies, digital currencies issued by technology companies, and other advancements in the fintech sector are cited as driving factors for exploring the development of a CBDC to ensure the stability of the country’s monetary system.
The RBNZ has outlined a comprehensive four-stage approach to develop and implement the New Zealand CBDC. The first stage involved assessing the need for digital cash in the country, which garnered significant public interest. The current stage, the second phase, focuses on designing the digital cash system, consulting stakeholders, and establishing budgetary frameworks. The subsequent stages will involve further development of the system, prototype testing, and finally, the official launch of the CBDC by 2030.
In addition to New Zealand, other countries such as South Korea and Hong Kong are also actively exploring the development of CBDCs. South Korea, for example, is accelerating its CBDC project and plans to pilot the digital Korean Won with a group of citizens later this year. Hong Kong has also entered the second phase of its e-HKD program to explore the possibilities of a digital currency. The global trend towards CBDCs reflects the increasing acceptance and recognition of digital currencies as a key component of the future financial landscape.
The RBNZ aims to address concerns related to declining innovation in the country’s payment services sector by introducing digital cash as a new payment option for consumers. By providing a digital alternative to physical cash, the central bank hopes to support financial inclusion, promote innovation in payment services, and maintain the country’s monetary sovereignty. The consultation process will play a crucial role in shaping the design and implementation of the New Zealand CBDC to ensure its effectiveness and alignment with the needs of users and stakeholders.
The development of a central bank digital currency in New Zealand reflects a broader trend towards digitalization in the financial sector globally. By exploring the potential benefits of digital cash and addressing the challenges associated with the decline of physical cash, the RBNZ aims to position New Zealand at the forefront of innovation in payment systems. The consultation process and subsequent stages of development will pave the way for the introduction of the New Zealand CBDC and contribute to shaping the future of digital currencies in the country and beyond.
