Bulletin article discusses the pros and cons of issuing a central bank digital currency
The pros and cons of a public digital currency issued by a central bank are evaluated in an article published today in the Reserve Bank Bulletin.
The focus of the article is how a public digital currency might affect four key central bank functions: currency distribution, payments, monetary stability and financial stability.
The article explores the nature of such a digital currency. It would be used alongside cash and would need to have a fixed exchange rate relative to cash, to be non-interest bearing, and where balances could not be negative. The digital currency could take the form of a ‘conventional’ digital currency, which relies on existing payments technology to operate; or a crypto-currency which relies on distributed ledger technology.
The key finding is that, on balance, the pros and cons are mixed across the range of central bank functions; and there is a clear need for central banks to better evaluate and understand the implications for both monetary policy and financial stability, relative to any digital currency they might issue.
This article, by Amber Wadsworth, is the third and last of a series on digital currency, the technologies underpinning it, and some of the issues associated with such currencies. These articles do not propose a design for a digital currency or suggest the RBNZ will issue one itself.
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