Multiple nations around the world have started progressing when it comes to the research, development, and launch of their respective central bank digital currencies (CBDCs). New Zealand, however, is stepping back from the CBDC race as the country’s central bank stated there are no plans to launch a digital currency in the near future.
According to the Reserve Bank of New Zealand’s Assistant Governor Christian Hawkesby, even though the bank is continuing to explore CBDCs, there are “no immediate plans to launch a CBDC in New Zealand,” but adds that the nation is “well connected” on the matter and will continue to closely monitor related developments.
“CBDCs present a range of high-level benefits and challenges,” Hawkesby said at the annual conference of the Royal Numismatic Society of New Zealand. Adding, that that the increasing access to cash and more financial inclusion being some of the many benefits.
As a part of his speech, Hawkesby summarized the finding of the Bank of International Settlements (BIS) on why more nations are looking into CBDCs. The drop in demand for physical cash, being heavily reliant on physical cash leaving many people outside the financial system, and growing demand for foreign or private currencies, are some of the reasons.
New Zealand is one of the nations that has been researching CBDCs since 2018, and had published a report titled “The pros and cons of issuing a central bank digital currency.”Per a BIS report, more than 80% of central banks around the world are exploring CBDCs.
Cash is still alive
Unlike the rest of the world, New Zealand isn’t going forward with the development of its CBDC as Hawkesby believes this would be the “defining challenge” of the 2020s like inflation was in the 1990s, and financial stability was in the late 2000s.
The nation’s central bank wants to take it slow because these digital assets are being built on technology that is yet to be proven en masse, as well as concerns that they could exclude vulnerable groups from the financial system as increasing numbers of merchants refuse to accept paper money.
However, in his speech, Hawkesby also argued that cash still provides “important benefits” and mustn’t be ruled out of the equation yet. He added that the central bank “is taking on the role of steward of the cash system.”
This is despite the fact that only 6% of the population relies on cash for their everyday needs. But the nation saw a surge in demand for cash during the early days of the coronavirus pandemic.
CBDCs have also been lagging behind cash in terms of privacy, instant settlement, and emergency offline backup payments. Based on this sentiment, Hawkesby said:
“These benefits of cash have so far been not well replicated by electronic money in commercial banks.”