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New Zealand’s central bank governor has announced the rollout of the country’s proof of concept plans for its central bank digital currency (CBDC) initiative.
New Zealand’s money and cash system is at a “crossroad” and innovation is necessary to build a sustainable future, Adrian Orr, the chief of New Zealand’s Reserve Bank, said while outlining digital currency plans at an investors’ conference in the country’s capital, Wellington.
The Reserve Bank has therefore confirmed that it is commencing a CBDC proof-of-concept design work, taking into account the public’s feedback received during a recent consultation on the matter, which ran from July last year onward.
It comes relatively soon after Australia’s finance minister confirmed in December that its government will commence consultation on the feasibility of a retail CBDC in Australia, with advice to be provided by the end of 2022.
Some 86 percent of central banks are exploring CBDCs and many countries have already undertaken operational tests, developed proof of concepts or are running trials.
Falling behind is also not an option for New Zealand and for that reason the Reserve Bank is assessing the case for a CBDC in New Zealand, Orr said.
However, work that the central bank is undertaking will be a “multi-stage and multi-year effort”, so no decision has yet been made on what form of CBDC is the right option for the Antipodean country.
“We must decide how best to use digital technology to modernise central bank money, while we continue to ensure cash remains an option for those who need it. An innovative approach is needed to support a more efficient and resilient cash system, and the changes required are potentially far-reaching,” he continued.
The technology exists now to implement a CBDC, but it needs to be well designed, he said. “At a basic hygiene level, a CBDC must be user-friendly, resilient to cyber and other operational risks, and enable privacy.”
In particular, Orr said that the latter had been a common topic in the central bank’s consultation responses.
This echoes the concerns that EU citizens have so far had about the digital euro, with the European Central Bank’s consultation process last year delivering similar results from its record-breaking 8,000 responses.
“We believe that a CBDC can be designed in such a way that privacy can exist alongside design features that make it hard for central bank money to be used for nefarious or illegal purposes,” he continued. “The emphasis we place on privacy reflects the fact that the CBDC design will be driven by a broad community, rather than specific commercial, interests.”
Orr summarised: “A CBDC would provide a platform for economic and financial innovation, including competition in the payments and settlement sector, cross-border transfers, and financial inclusion and capability building tools.”
Much like the rest of the world, digital payments have spiked in New Zealand in recent years. According to Payments NZ, there was a 62 percent increase in contactless transactions between 2018 and 2020.
Last year, the country’s first interbank digital wallet, Dosh, also entered the market, allowing residents to pay each other instantly for transactions under $500 using a smartphone app.
