- The RBNZ looking at possibilities to launch a digital currency.
- The Central Bank urged the public to send their feedback by 6 December.
- The official adoption of the digital currency would help to preserve monetary power and may greatly change the financial system of the country.
As per the latest reports, the Reserve Bank of New Zealand (RBNZ) has announced that it was seeking inputs from the public on the possibility of introducing a digital currency, i.e., the Central Bank Digital Currency.
Image source: © 2021 Kalkine Media New Zealand Lt; data source: RBNZ
According to a representative of RBNZ, the Central Bank Digital Currency, commonly referred to as the CBDC would include features and merits of cash pertaining to the digital world, as well as would function alongside actual cash and private money kept in commercial banks.
It is noted that many countries are exploring the potential use of the same and the US Federal Reserve would soon unveil its research comprising the cost and advantages of the use of CBDC.
The RBNZ has urged the public to send their feedback online latest by 6 December on the above-mentioned proposal.
The move could greatly benefit users as well as help in safeguarding money’s power
The RBNZ states that the adoption of digital currency would be beneficial for integrated platforms, thereby making them more effective and efficient. This in turn would be beneficial for both individuals as well as businesses.
Further, if CBDCs are introduced, it would help in shielding the monetary power.
Will address the limitation of lowering down physical use of cash
Moreover, the prospective use of CBDCs would help in tackling some of the drawbacks of decreasing the usage of physical cash and services, which the NZ government authorities are contemplating work upon in the country.
Monetary cash usage declined in the ongoing pandemic
According to research reports released by the RBNZ, it was found out that COVID-19 had hastened the reduction in the transactional use of cash.
44% of New Zealanders are not bothered about the decline in the cash available to pay for day-to-day things.
Moreover, the pandemic has increased the usage of electronic payment alternatives among Kiwis.
Possible effects of issuing digital currencies:
- Increase in electronic modes of payment
Though physical currency is widely used in most countries, consumers nowadays are increasingly using various electronic payment options for routine transactions.
With the adoption of CBDCs, the world will witness a huge influx in the usage of digital currencies, thereby outshining the use of physical currency.
- Digital currencies can change financial systems in a big way
Technological innovations and increased digital currency usage may accelerate both domestic as well as cross-border transactions, underpinned by decreased transactional costs.
Hence, it would also give power to rural and poor households to access financial systems, thereby broadening its boundaries.
- May undermine conventional banking systems
Though digital currencies could speed up transactions, it could lead to the destabilising of existing financial markets.
With the increased adoption of digital currency, business models of traditional banking systems may be sabotaged and would greatly reduce their role in the financial system of the country.
- Charm of owning cryptocurrencies may dwindle
Despite cryptos being hugely popular, people still trust conventional physical currencies for long-term investments, which are backed by central banks.
With the official adoption of digital currencies by countries, the thrill of investing in the crypto market may give way to the increased usage of CBDCs.
- More technological innovations underway
With the formal launch of the digital currency, more and more technological inventions and innovations would take place to allure customers.
Before taking any decision on the introduction of CBDCs, NZ authorities would carefully assess its operational risks like cyber security, etc., as well as its long-term effects on the country’s financial sector.