New Zealand central bank releases issue paper on digital currency

The Reserve Bank of New Zealand (RBNZ) published an issue paper providing its perspective on central bank digital currencies (CBDC).

The paper outlines CBDC purposes, designs, as well as the potential benefits and associated risks. The bank will be seeking comments on the proposed paper until Dec. 6.

The document focuses on a “general-purpose” CBDC that is a digital currency issued to “any individual or business that wants to use it.”

“Such a ‘general-purpose’ CBDC would be closer in function to cash and better placed to fulfil the role of central bank money than a ‘wholesale’ CBDC,” RBNZ wrote.

The central bank emphasized that a potential New Zealand CBDC would be digital money issued by the bank alongside cash. While the amount of cash in circulation has been growing in New Zealand, it is still used “proportionately less for transactions by most people,” the bank noted.

“We want people to know that the case for keeping cash is well understood and accepted by the Reserve Bank. Cash is here to stay for as long as some of us need it,” RBNZ assistant governor Christian Hawkesby said.

The paper also points out two major technological CBDC designs, including an “account-based” CBDC that relies on conventional account-based structures and a “token-based” CBDC, which is enabled by new technologies like blockchain and public-private key cryptography.

According to the RBNZ, a token-based CBDC has could enable the automatic execution of certain actions like rent or bill payments through smart contracts, thus reducing the need for manual or third-party involvement. A token-based CBDC could also support the development of new retail payment services, the bank added.

Related: CBDCs can cut cross border remittance costs by half: BIS report

The central bank also said that its proposed CBDC offers an opportunity to design a form of money that balances interests of both privacy and traceability. “Users may want to retain full privacy in transacting, for either legitimate or unlawful reasons. Meanwhile government agencies may want to retain some traceability of CBDC balances or tokens to reduce tax evasion or avoidance, or money laundering and financing terrorism,” RBNZ noted.

The RBNZ officially announced its plans to open up public consultations regarding a CBDC in July. Last year, RBNZ Assistant Governor Christian Hawkesby claimed that New Zealand had “no imminent plans” to issue a CBDC.