New Zealand To Soon Begin Proof-of-Concept CBDC Work

The Reserve Bank of New Zealand is commencing proof-of-concept design work on developing a central bank digital currency (CBDC).

Adrian Orr, Governor of the Reserve Bank of New Zealand said Tuesday that a decision should be made to best use “digital technology” to modernize CBDCs. The cash usage must parallelly remain as an option for those who opt for it, he added.

“The technology exists now to implement a CBDC, but it needs to be well designed. At a basic hygiene level, a CBDC must be user-friendly, resilient to cyber and other operational risks, and enable privacy. These features promote widespread trust and use,”

Orr said during an investors’ conference in Wellington.

New Zealand, however, has arrived fashionably late to the CBDC conversation, said in September that it “broadly favors the idea.” The central bank sought feedback from the public at the time, stating that it intends to prepare and publish a summary of responses by April 30, 2022.

Taking into account the public’s feedback received, the Reserve Bank said that the proof-of-concept CBDC design will be a “multi-stage and multi-year effort.” The authority hasn’t decided on what form of CBDC was right for New Zealand.

According to the governor, CBDC aims to bolster financial innovation, including cross-border transfers, financial inclusion and capability-building tools.

NZ Is in “No Hurry” To Issue a CBDC

New Zealand is moving in fits and starts towards embracing the digital NZ Dollar and cryptos into its financial sector.

It all started when there was a decline in the cash usage in New Zealand. In 2020, 71% of Kiwis used it as one way of paying. In 2019, it was 96%, according to Consumer findings.

The Reserve Bank of New Zealand started exploring the possibility of issuing a CBDC in September, saying the benefits that a digital NZ Dollar would bring include its potential use as a monetary policy tool.

Christian Hawkesby, assistant governor at the Kiwis’ central bank, said at the time, financial authorities are not in a hurry to issue a digital currency soon. He also claimed that the country has “no imminent plans” to issue one.

“To issue currency that meets the needs of the public, we must take a new and holistic approach,” he said.

Hawkesby’s statement echoed U.S. Fed’s chairman Jerome Powell’s claims in October that the U.S. will not be issuing a digital dollar until answers are sought for concerns surrounding a potential CBDC, including user privacy and security.

Scope for Stablecoins

In a first consultation released by the central bank in July 2021, Hawkesby said that the bank will look at the potential for a stablecoin along with CBDCs.

Stablecoins such as Tether (USDT), Dai (DAI), Binance USD (BUSD) are one of the catalysts for CDBC technology. This is because they emerge due to the lack of government regulation for cryptocurrency, wild market fluctuations, among other reasons.

An Auckland-based digital assets company Techemy launched what it called the first New Zealand dollar ‘stablecoin’, last year. The company said, the stablecoins will be backed by actual New Zealand dollars.

The country has seen several attempts at the creation of a stablecoin backed by the NZ dollar. The now-defunct cryptocurrency exchange Cryptopia issued the first unregulated stablecoin, NZDT, in 2017.