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The Reserve Bank of New Zealand (RBNZ) has published a consultation paper on its proposed central bank digital currency (CBDC). Titled “Digital Cash,” the paper is the second part of New Zealand’s CBDC process as it works towards the possible creation and deployment of a national digital asset.
New Zealand is one of many countries involved with the cryptocurrency sector by floating CBDCs. The central bank’s plan for a CBDC could make the country’s crypto landscape more appealing to businesses, encouraging them to support digital assets. Already, some of the best online casinos in New Zealand support cryptocurrencies, allowing users to deposit and earn using digital assets like Bitcoin (BTC), Ether (ETH), and Litecoin (LTC). And, in many countries worldwide, CBDCs are already being used to make everyday transactions privately and securely.
After this consultation, the RBNZ will assess feedback and create a business case based on insights received. The decision to proceed to the third stage depends on these insights from the second stage.
According to the published paper, New Zealand’s CBDC will be private and secure. The central bank promises that users will not need bank accounts as the CBDC will be freely available to everyone and distributed by private sector entities. The plan is to authorize several digital cash service providers and allow users to choose a preferred provider or use multiple services. The Reserve Bank will not provide the CBDC directly to users.
The RBNZ is focusing on individual use and will design the CBDC so that users will not need an internet connection. This will enable New Zealanders to easily make payments to businesses, government agencies, or other users. It will also help to cater to the “approximately 50,000 people over 16 years old that cannot, or do not, have a bank account in New Zealand.”
New Zealand CBDC to Solve Decline in Cash Usage
According to the RBNZ, the CBDC will address the reduced use of cash as a core payment option for many New Zealanders. The central bank has noticed that regular everyday transactions no longer use as much cash as before, stating a significant decrease in 2021 and 2023. In addition to addressing this problem, the apex bank believes that a CBDC must preserve monetary sovereignty, ensure financial stability, maintain the effectiveness of monetary policy, and allow market competition. The CBDC should also address any “unintended’ barriers to payments. According to the RBNZ:
“Central bank money must adapt to a changing economy and society. It must ensure New Zealand has reliable and efficient money and payment systems that support innovation and inclusion. Being clear on the role of central bank money into the future is critical and will shape money and payments for decades to come.”
The central bank also defends its decision to investigate digital currency. It explains that most central banks are doing the same, referencing a Bank for International Settlements 2022 survey, which revealed that 93% of 86 central banks were researching CBDCs. Reasons for CBDC considerations include financial inclusion, payment efficiency and safety, monetary policy implementation, and financial stability.
Last year, New Zealand crypto exchange Easy Crypto launched a stablecoin pegged to the New Zealand dollar in partnership with Australian blockchain development firm Labrys. Initially launched on the Ethereum stablecoin, the plan is to extend the New Zealand Dollar Stablecoin (NZDD) to other blockchains, including Polygon, Arbitrum, Optimism, Base, and BNB Smart Chain. Easy Crypto considered the NZDD necessary because maximizing profits through US dollar stablecoins is difficult for New Zealanders.
Opposing Views on Crypto
New Zealand’s Minister of Commerce and Consumer Affairs recently expressed worry that the country is a little too cautious about supporting crypto and blockchain innovations. Responding to comments from the Finance and Expenditure Committee in parliament, Andrew Bayly said New Zealand’s “wait and see” approach would cost the country several benefits of advancements in the crypto sector. All over the world, digital assets are already widely used to bridge the gap between the traditional and cryptocurrency sectors, including cross-border payments, non-fungible tokens (NFTs) representing real-world assets, and crypto gambling.
Bayly’s ministry offered a few recommendations. It proposes digital asset regulations that encourage innovation in the country’s crypto and blockchain sector, government support for industry development, training and educational resources, a taxation framework, and access to banking services.
Interestingly, the RBNZ central bank governor, Adrian Orr, does not support widespread crypto use in New Zealand. Speaking to the Finance and Expenditure Committee, Orr said cryptocurrencies like Bitcoin and stablecoins should not be considered a store of value or a means of exchange despite high adoption. According to Orr, stablecoins are only good if the underlying issuer’s balance sheet is good.
Despite the RBNZ’s progress towards a CBDC, tax authorities are going after untaxed crypto income from thousands of users. According to a recent press release, the Inland Revenue Department identified 227,000 unique crypto users who actively deal with cryptocurrency but omit income from their tax returns. The press release specifies 7 million transactions worth $7.8 billion.