New Zealand Starts Digital Cash Consultation

The Reserve Bank of New Zealand started a consultation on digital cash on Wednesday.

The central bank’s consultation paper invites citizens’ opinions on various aspects of digital cash, including whether or not interest should be offered and if there should be set holding limits. One proposed holding limit is $2000, which aligns with the benchmark for digital Euro holdings.

Central banks globally are now considering creating their own digital currencies, often referred to as central bank digital currencies (CBDCs), due to the growing interest in cryptocurrencies over the past few years.

In 2021, New Zealand initiated discussions regarding the prospect of money and Central Bank Digital Currencies (CBDCs). At that time, they expressed that a digital currency could potentially offer “an attractive proposition.” The 2024 consultation further elaborated that digital cash would expand payment options, be conveniently accessible, foster innovation, and utilize advanced features such as smart contracts.

“The use of digital currency could stimulate competition in New Zealand’s payment industry by allowing for the emergence of innovative forms of money and payment solutions from the private sector, according to the proposal.”

In simpler terms, the privately-owned sector would handle the distribution of digital currency, allowing New Zealand residents the freedom to select their preferred services.

The process of creating a Central Bank Digital Currency (CBDC) for New Zealand is ongoing and complex, taking several stages and years to complete. However, the country has not made a decision to introduce it yet, according to the consultation document. If issued, this digital currency would be equivalent to New Zealand dollars and exchangeable for physical cash on a 1:1 basis. Furthermore, it would be accessible around the clock.

The consultation closes on July 26.