As countries around the world continue leaning towards central bank digital currencies (CBDCs), the central bank of New Zealand (RBNZ) has published an issue paper outlining its perspective and the major benefits of CBDC designs centred on blockchain technology.
This comes after the RBNZ officially announced plans to open public consultations regarding CBDC in July, a year after Assistant Governor Christian Hawkesby, claimed that New Zealand did not have an imminent plan to issue a CBDC.
New Zealand is not the only country pressing for a central bank digital currency. Other central banks around the world including the central banks of China, Thailand, United States, Britain, Israel Nigeria, and the European Central Bank (ECB) in the eurozone have also made their plans public to create local CBDCs.
China is already testing its digital Yuan while Nigeria recently launched the website for its digital eNaira, ready for the launch of its CBDC.
The issue paper issued by the RBNZ outlined the CBDC uses, designs, and the potential benefits and risks.
The RBNZ will be seeking comments and proposals on the issue paper until December 6, 2021.
In a statement issued by RBNZ, it says:
“Such a ‘general-purpose’ CBDC would be closer in function to cash and better placed to fulfil the role of central bank money than a ‘wholesale’ CBDC.”
A general-purpose CBDC would be a digital currency that would be issued to any business or individual that wants to use it, just like private cryptocurrencies such as Bitcoin, only that in this case, the CBDC is controlled by a central body, the central bank.
The RBNZ also emphasized that a potential New Zealand CBDC would be a digital currency that would be issued alongside the normal fiat currency. It also noted that while the amount of fiat currency in circulation in New Zealand has been growing, it is still not used for transactions by most citizens.
RBNZ assistant governor Christian Hawkesby said:
“We want people to know that the case for keeping cash is well understood and accepted by the Reserve Bank. Cash is here to stay for as long as some of us need it.”
The RBNZ seems to be pursuing two technological CBDC designs; an account-based CBDC and a token-based CBDC.
An account-based CBDC would rely on the conventional bank account structures while a token-based CBDC would rely on new technologies and especially blockchain and public-private key cryptography.
According to the bank, a token-based CBDC would make it easier to automate certain actions like bill payments through smart contracts, as is the case with Ethereum and other blockchains. This would reduce the need for middlemen or third-party involvement.
The token-based design would also spur the development of new retail payment services across the country.
In the issue paper, the bank was aware of the fact that there was the need for a digital currency that balanced the bridge between traceability and privacy; noting that:
“Users may want to retain full privacy in transacting, for either legitimate or unlawful reasons. Meanwhile, government agencies may want to retain some traceability of CBDC balances or tokens to reduce tax evasion or avoidance, or money laundering and financing terrorism.”