A central bank digital currency (CBDC) would be digital money issued by us. It would be recognised as a means to save and pay, just as banknotes and coins are today. You would likely need a payment instrument like a payment card or perhaps a phone app to access the money held as CBDC. Like physical notes and coins, CBDC is issued by the central bank, and you don't need a commercial bank account to use it.
If New Zealand was to have CBDC, it would exist alongside cash. People could choose to access their CBDC balance rather than their private money account to make online payments.
CBDC would be similar to private money because it would be digital, but would be less risky than private money. CBDC could be accessed and viewed digitally. For example, it might be accessed using a phone app.
What are some benefits of a CBDC?
Your CBDC would be safer than money in the bank
CBDC money is similar to commercial bank money. But it differs because the money held in a commercial bank account represents an IOU from the commercial bank, but the money held in a CBDC would represent an IOU from the government. A CBDC is issued by a central bank and is government-backed — this means it will continue to exist forever. A CBDC would be the lowest-risk form of money.
A CBDC would encourage payments innovation
A CBDC would provide new functionality for its users when compared to most existing payment instruments available in New Zealand. It would be built using modern payments technology and allow new financial service providers to access the platform. In doing so, a CBDC could reinforce central bank money’s role as a value anchor and its contribution to financial and social inclusion. It could also stimulate innovation and efficiency in the wider money and payments system.
Challenges of a CBDC
A CBDC could present a series of challenges that would need to be worked through, such as:
- making sure it can't be compromised operationally by — for example — cyber-attacks
- balancing protections for users' privacy and autonomy with the ability to detect possible criminal activity.
- damaging or unintended impact on the financial system if any introduction of a CBDC is not managed well.