News In Brief - October 4, 2021

October 4, 2021
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The Reserve Bank of New Zealand launches consultation on central bank digital currencies (CBDCs) and the Bank for International Settlements releases three new CBDC reports.

New Zealand Reserve Bank Looks At CBDCs

The Reserve Bank of New Zealand (RBNZ) has begun to consult interested parties about central bank digital currencies (CBDCs) and the stewardship of money.

“Commercial banks, the wider cash industry and Te Pūtea Matua (the Reserve Bank) need to seize opportunities and innovate to ensure that the cash, money and ways to pay continue to serve New Zealanders’ needs,” said assistant governor Christian Hawkesby after the bank released two papers on the subject.

In a paper entitled “Future of Money – Central Bank Digital Currency”, the central bank seeks people’s views about the opportunities, challenges and indicative design principles of a retail CBDC.

Another paper on the stewardship of money seeks feedback about the RBNZ’s stewardship of money and cash in future. The law on the subject has changed recently.

Interested parties can send feedback to the bank until December 6.

In addition, the RBNZ will publish a third paper entitled “Future of Money – Cash System” in late November. This will also be a consultative exercise on the subject of the cash system and ways to make it more efficient and resilient.

BIS Papers On Way For CBDCs

The Bank for International Settlements (BIS) has published three reports concerning interoperability and the adoption of CBDCs, their needs and their implications for financial stability.

Last October, the BIS and seven central banks published an “initial” report that outlined the principles on which they might found their CBDCs. The three new reports, which the central banks of Canada, the UK, the US, the EU, Japan, Sweden and Switzerland prepared, attempt to build on that older report. They concentrate on the implementation of CBDCs.

The first report contains tentative plans for privacy, people’s access to data about payments, private-public collaborations, and interoperable systems that CBDCs might develop.

Another report is entitled “CBDCs – user needs and adoption”.

“Lessons from previous payment innovations compiled in the report show that success often requires harnessing network effects and not requiring users to obtain new devices. Nonetheless, there would not be a 'one-size-fits-all' solution and CBDC adoption strategies would need to consider multiple perspectives through public consultations,” the BIS said.

The third report discusses the effect that a CBDC might have on banking systems and notes the following.

“CBDCs would have implications for financial intermediation and would need careful design and implementation; but our analysis suggests the impacts on bank disintermediation and lending could be manageable for the banking sector. A significant shift from bank deposits into CBDCs (or even into certain new forms of privately-issued digital money) could have implications for lending and intermediation by the banking sector. However, our analysis also suggests that these impacts would likely be limited for many plausible levels of CBDC take-up, if the system had the time and flexibility to adjust.”

The BIS has also noted that “preliminary analysis highlights the importance of allowing the financial system time to adjust and the flexibility to use safeguards to influence CBDC adoption”.

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