Furthering its exploration into the potential of a central bank digital currency (CBDC), the Reserve Bank of New Zealand is to consult the public on the potential for a CBDC ‘to work alongside cash as government-backed money’.
The central bank will open up a series of public consultations as it assesses issues arising from new electronic money forms including crypto assets such as bitcoin and stablecoins such as Facebook-backed Diem (formerly known as Libra).
From August to December, the bank will be releasing a series of ‘money and cash issues’ papers and called on those ‘affected or interested in these issues’ to register online in order to be included in the consultations, during which ‘we’ll be talking and travelling widely to hear from all the interests involved’.
The intention is to explore the potential for a CBDC to ‘help address some of the downsides of reducing physical cash use and services’, assistant governor Christian Hawkesby said in the bank’s press release. However, he added that before developing any concrete proposals, ‘we need to test our assessment of the issues and proposed approach’.
‘Following developments very carefully’
New Zealand’s central bank has been taking a cautious yet active approach towards CBCD since 2018, when it published a three-part set of articles titled ‘The central bank digital currency series’. The third article, ‘The pros and cons of issuing a central bank digital currency’, concluded how the pros and cons of a CBDC ‘are mixed across each of the central bank functions, revealing the complexity in evaluating such a currency’. The article particularly pointed out that the implications for monetary policy and financial stability could be significant, both positively and negatively.
During a speech in 2020, Hawkesby emphasised that New Zealand had no immediate plans to launch a CBDC. The Reserve Bank was however, ‘following developments very carefully’, and belonged to the 80 per cent of central banks researching CBDCs.
Alongside last week’s announcement, the Reserve Bank published a series of research reports looking at trends in cash and payments preferences and services. The ‘Comparison report: Cash use surveys 2017, 2019, 2020’ shows how the decline in the country’s cash users is reflected across a number of indicators, including the proportion of people who do not hold cash in their wallet.
‘Cash and payments data update: COVID-19 special’ looks at how the Covid-19 pandemic accelerated the decline in transactional cash use ‘despite New Zealanders’ rush to cash in March 2020’ in the weeks leading up to a nationwide lockdown. About 70 per cent of the population indicated in 2020 that cash is one way they use to pay for everyday things, compared to 96 per cent in 2019 and 2017.
“Despite less New Zealanders using physical cash, the ability to use it remains widely valued because it ensures inclusion, and gives everyone autonomy and choice in the way they pay and save,” Hawkesby said. “Some communities, as well as personal and retail customers, were struggling with the loss of cash and in-person banking services despite banks’ efforts to help them adapt,” he added.
CBDCs for cross-border payments
To date, no major jurisdiction has launched a CBDC and many design and policy decisions are unresolved. Also, most CBDC investigations by central banks focus on domestic considerations. In this context, the Committee on Payments and Market Infrastructures, the Bank for International Settlement’s Innovation Hub, the International Monetary Fund and World Bank released a joint report on 9 July urging collaboration in designing CBDCs to enable cross-border payments.
The report states that ‘implications of CBDCs, even if only intended for domestic use, will go beyond borders, making it crucial to co-ordinate work and find common ground’. The G20 made enhancing cross-border payments a priority during its 2020 Saudi Arabian presidency. ‘Faster, cheaper, more transparent and more inclusive cross-border payment services would deliver widespread benefits for citizens and economies worldwide,’ according to a Financial Stability Board report in April 2020.
The authors of the joint report take stock of the international dimension of CBDC projects and analyse how CBDCs could facilitate enhanced cross-border payments. They highlight both the need for multilateral collaboration on macro-financial consequences as well as the importance of interoperability between CBDCs.
Facilitating international payments with CBDCs could be achieved through different degrees of integration and co-operation, ranging from basic compatibility with common standards to the establishment of international payment infrastructures, the report states. The authors conclude that ‘if co-ordinated successfully, the clean slate presented by CBDCs might – in time and in combination with other improvements – be leveraged to enhance cross-border payments’.
Jamaica’s CBDC pilot to start in August
Meanwhile, the list of economies launching trials for a CBDC grew a little longer last week. According to a report in the Jamaica Observer, the Bank of Jamaica (BoJ) will pilot a rollout of its CBDC in August.
The central bank is working on the technical facets of the digital currency in a sandbox environment, planning to ‘test it rigorously’ next month with the National Commercial Bank, BoJ governor Richard Byles was quoted as saying.
From September to December more commercial banks would be recruited to participate “and then we’ll gradually expand the pilot out into a full-fledged launch of the CBDC”, Byles reportedly told the audience at an event.
“The commercial banks… need to put their shoulders behind the wheel as they promote, adopt and recommend it for use to their customers,” he also reportedly said. “We also need [the] government to support and use CBDCs as much as possible, whether to make PATH [Programme of Advancement through Health and Education], pension or other payments,” Byles was quoted as saying.
Another Caribbean island nation, the Bahamas, launched a CDBC last year – the first fully deployed digital version of a fiat currency. Jamaica, which set out its digital currency ambitions in March, is working with an Ireland-headquartered company, eCurrency Mint, as CBDC technology provider.
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