The Reserve Bank is looking at a possible digital currency to allow transactions to be done more efficiently and cheaply, while still retaining physical cash.
Photo: 123RF
It's asking for public feedback on two discussion documents on the merits of a central bank digital currency (CBDC), but has repeated that it would want to preserve the traditional dollars and cents despite declining usage.
Assistant Governor Christian Hawkesby told Nine to Noon there are potentially significant benefits from a digital currency working alongside cash and private money held in retail banks.
"It could make for much more efficient and integrated platforms benefiting individuals and businesses, as well as protecting monetary sovereignty. However, any decision to issue a CBDC would need to carefully consider operational risks, such as cyber security, and impacts on the financial sector."
Listen to the full interview
He said the use of physical notes and coins was declining, but about six percent of the population has no access to bank services and relies on cash, and there was widespread support for retaining it.
"People like having physical cash as a backup payment, they know other people who are reliant on physical cash and so they have a real empathy to having that.
"What we're saying is let's have a dual system where we have physical and central bank money."
He said a digital currency would have to be designed to ensure it was secure, and fitted the needs of monetary policy such as setting interest rates.
Hawkesby said a digital dollar could be used stored in a digital "wallet" on a mobile phone or other device and directly linked to the RBNZ.
He said under the current cash system only the large retail banks have an "account" with the RBNZ, and so such a currency would be more inclusive for the general public.
[h] Make banks hold cash
Hawkesby said to ensure that cash remained available to consumers it could be mandatory for retail banks to hold and deal in physical cash, which they have been moving away from through their own digital payments systems such electronic cards.
"Banks face incentives that do not support the cash system despite them being a part of it. From a business-as-usual profit perspective banks are arguably better off if the cash system fails to attract customers and merchants."
However, Hawkesby said a central bank digital currency would not be like cryptocurrencies such as Bitcoin, the value of which can fluctuate wildly, and the RBNZ was also wary of the rise of "stablecoins", private money created by corporations such as Facebook's proposed Libra, which it later pulled away from in the face of official scepticism and concerns.
He said a digital dollar could be a boon for foreign workers in New Zealand sending money back home, which at the moment is difficult and expensive.
The RBNZ discussion documents can be found here.