New Zealand Begins Public Consultation to Introduce CBDC

The Reserve Bank of New Zealand (RBNZ) has launched a public consultation on "Digital Cash," signaling the initiation of a proposed central bank digital currency (CBDC), as outlined in a consultation paper unveiled on April 17.

This consultation, now in its second stage, is scheduled to last 101 days, spanning from April 17 to July 26. Following the gathering of feedback and the development of a business case in Stage 2, a decision regarding progression to Stage 3 is expected.

To comprehend the underlying rationale behind the New Zealand CBDC, it's essential to explore the motivations and objectives elucidated in the consultation paper.

Why Does New Zealand Want a CBDC?

As outlined in the Consultation Paper, New Zealand's Digital Cash initiative will prioritize retail accessibility, targeting both consumers and corporate users.

The Reserve Bank's decision to pursue a CBDC stems from the observed decline in physical cash usage, with concerns raised about potential repercussions on financial inclusion for cash-dependent individuals.

The paper references a survey indicating a gradual reduction in fiat currency usage, with 58% of consumers reported to have used physical cash in 2023, down from 63% in 2021.

In addition to addressing dwindling cash usage, the RBNZ aims to meet evolving digital payment needs and foster financial innovation.

Notably, the rapid advancements in crypto assets, distributed ledger technologies, and digital currencies issued by global tech giants have prompted concerns about the potential erosion of monetary sovereignty if New Zealanders opt for alternative currencies.

To mitigate these risks, the RBNZ views the introduction of digital cash as crucial for ensuring innovative payment services domestically and safeguarding the country's monetary autonomy.

The central bank emphasizes the need for enhanced innovation in New Zealand's payment landscape, positioning digital cash as a means to lower barriers to entry into the payment ecosystem and as a new foundational component of the nation's digital infrastructure, supporting ongoing digital transformation efforts.

The RBNZ has outlined a comprehensive four-stage strategy to develop and implement the New Zealand CBDC.

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RBNZ’s 4-Stage Path Towards CBDC

RBNZ has adopted a systematic four-stage approach to the development of digital cash. The initiative commenced in 2021 with the publication of an issues paper aimed at assessing the necessity for digital cash in New Zealand (Aotearoa). The RBNZ received an overwhelming response, with over 6,000 submissions indicating significant public interest.

Currently, the RBNZ is in the second stage of its CBDC endeavour. This phase involves exploring design options for Digital Cash, conducting consultations, and establishing budgetary frameworks.

Upon the conclusion of the consultation phase, the RBNZ will proceed with the development of the structure and policy requirements, with an expected completion date set for June 2025. Subsequently, a comprehensive cost-benefit analysis will be conducted.

Anticipated to wrap up in 2026, Stage 2 will then lead to recommendations on whether to advance to Stage 3 of the New Zealand CBDC issuance process.

Stage 3 will entail the development and testing of prototypes to ensure the functionality of the digital cash system. The final stage, Stage 4, will signify the official launch of the New Zealand CBDC, expected by 2030.

In parallel, other nations are actively exploring CBDC initiatives. South Korea is expediting its project, aiming to test the usability of the digital Korean Won (KRW) by the end of 2024.

Similarly, Hong Kong has entered the second phase of its e-HKD program, further exploring the potentialities of a digital currency.