The Reserve Bank of New Zealand (RBNZ) has begun public consultation on a proposed central bank digital currency (CBDC) known as “Digital Cash.” The consultation will last 101 days from April 17 to July 26 and is currently in its second stage. The RBNZ aims to introduce a retail-focused CBDC that will target consumers and corporate users as an electronic version of cash that will sit alongside physical cash, not replacing it. The decline in the use of physical cash and advancements in digital currencies globally are motivating factors for the introduction of a CBDC in New Zealand.
The RBNZ’s consultation paper highlights the decline in physical cash usage, with only 58% of consumers using cash in 2023 compared to 63% in 2021. This trend could negatively impact financial inclusion for those who rely on cash. The central bank also recognizes the need for digital cash to meet evolving payment needs and support financial innovation. By introducing a CBDC, the RBNZ aims to ensure innovative payment services are available in New Zealand and protect the country’s monetary sovereignty in the face of global digital currency developments.
The RBNZ has outlined a four-stage approach to developing and implementing the New Zealand CBDC. The first stage involved assessing the need for digital cash, which received significant public interest, leading to the current second stage. In this stage, design options are being explored, consultations are being conducted, and budget frameworks are being established. Following the completion of the consultation phase, further development, policy requirements, and a cost-benefit analysis will be conducted to determine whether to progress to Stage 3 of the CBDC issuance process.
Other nations are also actively exploring CBDCs, with South Korea and Hong Kong making advancements in their digital currency projects. South Korea aims to test the digital Korean Won (KRW) with a group of 100,000 citizens by the end of 2024, while Hong Kong is in the second phase of its e-HKD program. These global developments in CBDCs highlight the need for New Zealand to stay abreast of digital currency innovations and ensure that its payment services remain innovative and competitive on a global scale.
The development and implementation of the New Zealand CBDC are seen as crucial steps towards modernizing the country’s payment systems and supporting digital transformation. By introducing digital cash, the RBNZ aims to bring down barriers to entry in the payment system, establish new digital public infrastructure, and ensure that innovative payment services are available domestically. The completion of the four-stage approach is expected to culminate in the official launch of the New Zealand CBDC by 2030, positioning the country at the forefront of digital currency innovation and ensuring the continued relevance of its monetary system in a rapidly changing financial landscape.
