The Reserve Bank of New Zealand is beginning proof-of-concept design work to develop a central bank digital currency (CBDC).
Adrian Orr, governor of the Reserve Bank of New Zealand said on Tuesday that a decision should be made to make best use of "digital technology" to modernize CBDCs. In parallel, the use of cash must remain an option for those who opt for it, he added.
“The technology now exists to implement a CBDC, but it has to be well designed. At a basic hygiene level, a CBDC must be easy to use, resilient to cyber and other operational risks, and enable privacy. These features promote trust and widespread use ".
Orr said during a conference of the Investors in Wellington.
New Zealand, however, came with some delay to the CBDC conversation, saying in September that it "is largely in favor of the idea." The central bank sought feedback from the public at the time, stating that it intends to prepare and publish a summary of the responses by April 30, 2022.
Taking into account public feedback received, the Reserve Bank said the proof-of-concept CBDC project will be a "multi-stage, multi-year effort". The authority did not decide which form of CBDC was right for New Zealand.
According to the governor, the CBDC aims to support financial innovation, including cross-border transfers, financial inclusion and capacity-building tools.
NZ is in no rush to issue a CBDC
New Zealand is moving erratically towards adopting the digital NZ dollar and cryptocurrencies in its financial sector.
It all started when there was a decline in the use of cash in New Zealand. In 2020, 71% of kiwis used it as a way to pay. In 2019, it was 96%, according to Consumer results.
The Reserve Bank of New Zealand began exploring the possibility of issuing a CBDC in September, saying the benefits a digital NZ dollar would bring include its potential use as a monetary policy tool.
Christian Hawkesby, assistant governor of the New Zealand central bank, said at the time that financial authorities are in no rush to issue a digital currency soon. He also said the country has no "upcoming plans" to issue one.
"To issue a coin that meets the needs of the public, we need to take a new and holistic approach," he said.
Hawkesby's statement echoed claims by US Fed Chairman Jerome Powell in October that the United States will not issue a digital dollar until answers are found to concerns surrounding a potential CBDC, including user privacy and safety. .
Scope of news for Stablecoins
In an initial consultation released by the central bank in July 2021, Hawkesby said the bank will examine the potential for a stablecoin alongside the CBDC.
Stablecoins like Tether (USDT), Dai (DAI), Binance USD (BUSD) are one of the catalysts of CDBC technology. This is because wild fluctuations in the market emerge due to the government's lack of regulation for cryptocurrencies, among other reasons.
An Auckland-based digital goods company, Techemy, launched what it called the first New Zealand dollar 'stablecoin' last year. The company said the stablecoins will be backed by real New Zealand dollars.
The country has seen several attempts to create a New Zealand dollar-backed stablecoin. The now defunct cryptocurrency exchange Cryptopia issued the first unregulated stablecoin, NZDT, in 2017.