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Future of money – central bank digital currency – Te moni anamata – aparangi ā te pūtea matua

We invite your views on how we propose to explore whether a central bank digital currency (CBDC) is right for Aotearoa.

Read the Future of Money – Central Bank Digital Currency issues paper (PDF 3MB)

Read more about the Future of Money – Summary of responses to our 2021 issues papers (PDF 1.3MB)

Read the public responses to our 2021 issues papers

Download a copy of the feedback form (PDF 204KB)

Navigating this issues paper

Sections 1 to 3

The first three sections provide background material to the issues discussed in this paper to let you fully engage with the rest of the paper. These include descriptions of the main terms used and our thinking on whether a CBDC would support our role as steward of money and cash, particularly in a digital future. They cover:

  • introduction
  • what is a CBDC
  • motivation and process for considering a CBDC.

Sections 4 to 7

The next three sections outline some of the opportunities presented by the CBDC, as well as challenges and risks posed. These then propose a set of high-level CBDC design principles. They cover:

  • opportunities of a CBDC
  • challenges and risks of a CBDC
  • developing CBDC design principles
  • conclusion and next steps
  • have your say.

Section 8

Consultation questions

The Appendices

The Appendices provide additional information, including a primer on the current state of our payment system, a discussion on the features from different design choices and the impact of CBDC on our bank balance sheet. They cover:

  • a primer on the inefficiencies in New Zealand’s payment system
  • account-based vs token-based digital money
  • our balance sheet
  • wholesale CBDC.

Executive summary

We characterise our mandates, roles and responsibilities in terms of the Tāne Mahuta narrative (depicted in the following introduction). In this metaphor, central bank money forms part of te Toto, the sap of the tree representing our financial system (Tāne Mahuta). We have a role in ensuring te Toto is healthy and resilient, thereby supporting the rest of our strategic roles and mandates as represented by other parts of Tāne and his ecosystem.

As kaitiaki o te toto—the steward of money and cash in New Zealand—we aim to ensure central bank money contributes to a sound and dynamic monetary and financial system by being:

  • a stable anchor of value and confidence and convertibility in our money
  • a fair and equal way to pay and save in our modern and inclusive economy.1

This objective reflects the fact central bank money (whether in physical or digital form) plays an underpinning role in ensuring all prices are set in New Zealand dollars and people can confidently expect to be able to make payments and settle debts in New Zealand dollars now and into the future.

Trends in cash use and innovation in money present an opportunity for us to consider broadening central bank money to include a widely available digital form, and so continue to meet the needs of New Zealanders. 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).

Our initial CBDC considerations are focused on the public policy case for or against a CBDC that would be available to all individuals, communities and businesses. We refer to this as a ‘general-purpose’ CBDC, which we will shorten to CBDC in this paper.

Following on from our Future of Money – Stewardship issues paper, this paper sets out our view of the high-level policy opportunities and challenges of a CBDC. In this sense, it can be thought of as a discussion on the in-principle case for a CBDC. In practice, the exact costs and benefits of a CBDC will depend very much on specific design details that we are not yet at the point of considering. Instead, this paper explains how we see the abstract advantages and disadvantages, costs and benefits, and risks and opportunities that a CBDC might offer. We intend this as the starting point for a conversation with stakeholders on the potential role of a CBDC for New Zealand.

Developing a CBDC would require long lead times given the inherent complexities, multiple design choices and policy choices to be made. This means we will need to take a multi-stage approach to policy development, with this issues paper being the first of many should we confirm our position on the case for a CBDC.

We believe a CBDC would be a useful development for central bank money, because it would both support the value anchor role of central bank money, and support the ability of central bank money to act as a fair and equal way to pay and save.

A CBDC directly supports the role of central bank money as a value anchor by:

  • providing individuals and businesses with the option of converting privately issued money into a digital form of central bank money (ensuring the long-term convertibility of private money into central bank money)
  • improving the technological form of central bank money to ensure it remains relevant in a digital future
  • providing an additional monetary policy tool (by it being either issued to provide monetary stimulus, or interest bearing).

A CBDC both directly and indirectly provides a fair and equal way to pay and save by:

  • directly providing a basic form of paying and saving to all at a low cost, and acting as a gateway to the formal financial sector
  • supporting wider financial inclusion and wellbeing efforts, including through partnering with government programmes
  • providing individuals with freedom and autonomy in saving and paying by giving them greater choice, and providing a personal back-up in times of uncertainty.

Finally, a CBDC and its ecosystem (including the distribution model) have the potential to act as a catalyst for innovation and competition in the wider money and payments ecosystem. This could bring improvements to domestic payments’ efficiency and resilience, as well as enable New Zealand to take part in global initiatives that use CBDCs to improve cross-border payments.

However, a CBDC is not without challenges:

How a CBDC may affect the banking sector requires careful consideration.

  1. As with other forms of digital money, a CBDC must be operationally resilient to outages and cyber security risks, maintain data privacy, and it would need to comply with all relevant regulation.
  2. Similarly, while a CBDC has the potential to act as a catalyst for innovation and competition in the wider money and payment ecosystem, we will have to consider the potential for it to crowd out innovation.
  3. Given its assessment of policy issues, the issues paper proposes a set of high-level design principles that would need to be incorporated in a CBDC issued to all. We invite your feedback on the CBDC policy analysis and design principles.