The Future of Money – Stewardship | Te Moni Anamata - Kaitiakitanga
We were seeking feedback from 30 September to 6 December 2021 on how we should steward money and cash following a recent law change. Feedback is now closed, but you can read the issues paper here, and we plan to publish a summary of submissions received and an outline of next steps before the end of April 2022.
Navigating this issues paper
Part A (Sections 1-3) provides background material to enable readers to engage fully with the rest of the paper. It includes descriptions of key terms and assumptions, and explanations of why central bank money matters.
- Why New Zealand needs a money and cash steward.
- Why central bank money matters.
Part B (Sections 4-8) outlines how we propose to act as steward of money and cash and describes the proposed policy priority areas. Consultation questions are listed at the end of each section.
- Stewardship of money and cash.
- Cash system redesign.
- Central bank digital currency.
The Appendices provide a glossary and additional material, including a comparison of our proposed approach to stewardship with a commonly applied framework.
- What underpins confidence in central bank money.
- How the Reserve Bank supports the monetary system.
- The Reserve Bank’s proposed approach to stewardship, contrasted with the government’s published views about what constitutes good stewardship practice.
This issues paper from the Reserve Bank of New Zealand – Te Pūtea Matua (Reserve Bank) is about money. The systems that provide cash and other forms of money and that enable the making of payments exist as a complex, interconnected network. This network – ‘the monetary system’ – underpins everything that happens in the economy. Ensuring that the monetary system is healthy and efficient and meets the needs of stakeholders is a core responsibility of any central bank. Meeting the needs of stakeholders increasingly means providing innovative and efficient options for people. One characteristic of a healthy monetary system is that it can adapt to innovation and improve in a safe and resilient way.
This is the first in a series of papers that seek feedback on a number of issues related to the health, efficiency and choices offered by the monetary system. The purpose of this paper is to:
- introduce the context for the Reserve Bank’s work programme on money and cash issues, and the key concepts that underpin this work;
- invite feedback on the Reserve Bank’s proposed interpretation of its responsibilities in relation to the monetary system – as steward of money and cash – including outlining its proposed objectives and approach; and
- introduce and receive feedback on the Reserve Bank’s proposed priority areas for policy development as steward of money and cash.
An important function of the Reserve Bank in maintaining the health of the monetary system is the issuing of central bank money, in the form of cash, to the public. Central bank money performs two vital tasks:
- It provides a fair and equal way to pay and save. It contributes to social and financial inclusion by being one option that enables people and businesses to pay and save and undertake other socially meaningful exchanges, like gifting to and rewarding others.
- It provides a ‘value anchor’ for the monetary system. Only central bank money performs this role. This means that central bank money ensures that New Zealand retains ‘monetary sovereignty’, by having access to independent monetary policy as a tool to achieve price stability and sustainable employment and respond to economic shocks.1
An important assumption underpinning this paper is that New Zealanders value monetary sovereignty.
The Reserve Bank has monitored and reported on developments affecting New Zealand’s monetary system for some time. In 2017 the Reserve Bank launched an investigation into cash use and cash distribution. This led to public consultation on cash-related issues in 2019.2 And in 2020 the Reserve Bank created a new department – the Money and Cash Department – Tari Moni Whai Take – to better deliver on its responsibilities with respect to the smooth functioning of the monetary system.
Legislative changes (2019, 2021) have been happening alongside the Reserve Bank’s ongoing work in this area. Together, the legislative changes and establishing the Money and Cash Department have increased the Reserve Bank’s capacity to act to ensure that money and cash in New Zealand, and the monetary system, are meeting the needs of New Zealanders.
The monetary system and the environment that surrounds it are ever-changing. Three key trends in the monetary system are important drivers of the issues that underpin the proposals in this overarching paper (and the series of more detailed papers that will follow it):
- A continuing decline in the use of cash in transactions.
- Digital innovation in money and payments.
- Opportunities to stimulate innovation in the wider payment systems.
In the Reserve Bank’s view these trends pose both opportunities to stimulate innovation to enhance the prosperity and wellbeing of New Zealanders, and credible threats to the stability and functioning of the monetary system.
Given the trends outlined above, the Reserve Bank intends to expand and seek to formalise its system stewardship role in respect of money and cash issues. Our objectives as steward are to ensure, now and in the future, that the money we issue as a central bank (‘central bank money’) is a stable value anchor for the monetary system; is available as a fair and equal way to pay and save; so ensuring that New Zealanders have access to money in forms that suit them and their changing needs.3
In delivering this stewardship role, the Reserve Bank intends to take a proactive approach, ensuring that the systems it oversees are modern, agile and forward looking. As some responsibilities for policies that affect the monetary system are held outside the Reserve Bank, we will work in a collaborative and coordinated way with other agencies to take a strategic, system-wide approach. Our preliminary analysis suggests that we may need more powers if we are to fulfil our stewardship responsibilities. This paper explains where we think these regulatory gaps lie.
In our role as steward of money and cash issues, we will prioritise work in the following three areas:
- Optimising the lifecycle management of physical cash – and therefore New Zealanders’ access to it – by redesigning the system that makes cash available around New Zealand (actively or by supporting private sector initiatives).
- Exploring the opportunities and threats posed to the monetary system by a form of private-sector digital asset – stablecoins.
- Assessing the potential case for a New Zealand central bank digital currency.
This issues paper is accompanied by others on the topics of central bank digital currency (September 2021) and cash system redesign (November 2021).
- 1 Central bank money establishes and maintains the New Zealand dollar as: (1) New Zealand’s monetary unit of account and (2) official means of payment, and (3) ensures that New Zealand has the use of monetary policy as a tool to respond to economic shocks (by setting interest rates on the New Zealand dollar). When all three of these conditions are met, a country is said to have monetary sovereignty. Refer IMF (2005)
- 2 Reserve Bank (2019)
- 3 ‘Central bank money’ is a term that is used in this paper to refer to the money the Reserve Bank issues. Cash is an example of central bank money and it is currently the only central bank money available for anyone to use.