In brief
- A CBDC can have many subtleties, but is more likely to be an account with the government instead of at your bank.
- Central Bank Digital Currencies always raise privacy concerns, but most transactions are already traceable.
- How would CBDCs be that much different for the average person, especially if they are optional?
- Despite declining use overall, cash is still king in a crisis.
What are central bank digital currencies (CBDCs)?
A central bank digital currency, or “CBDC”, is an electronic version of a country’s physical cash and coins. There can be all sorts of nuances but it wouldn’t be like Bitcoin (which is a non governmental digital currency) in that it doesn’t rely on blockchain technology to keep track of it.
Also, non government digital currencies are speculative investments which can fluctuate widely in value. CBDCs would be convertible into standard currency on a one for one basis. The use of CBDC would also likely not depend on an intermediary like a commercial bank or private service (such as Apple Pay).
New Zealand is exploring CBDCs
CBDCs are still in their infancy. New Zealand is one of 130 countries currently studying them. In an explainer published in July 2023, RBNZ says:
“We are exploring high level design options for the CBDC, and their costs and benefits.”
Although the RBNZ says there’s no intention to replace cash, its continuing decline in use is partly responsible for spurring interest in CBDCs.
Ian Woolford, RBNZ’s director of money and cash, says a CBDC is still years away, but “will make sense”.
A series of RBNZ discussion papers on the Future of Money include a summary of thousands of responses from Kiwis, which overwhelmingly affirm the public want to see the role of physical cash preserved even if CBDCs are introduced.
Privacy and CBDCs
Key conversations around CBDCs involve privacy. Central bank money in the form of cash and coins can be transacted relatively anonymously, albeit only for smallish amounts below the reportable limit ($10,000).
Some are leery of more government surveillance and potential overreach. We are not discouraging that concern, since it is easier for the government to interfere if the machinery is in place. However, most transactions, such as on your bank card, are already trackable, subject to privacy laws.
And the Government can always legislate much easier access for themselves to banking information or can restrict certain activities, like rationing purchases, if they so choose.
The key is not whether there are CBDCs but the robustness of the laws protecting the citizens from the government. That is why vigilance is required, including a strong and independent press and free speech. It is also always better for any individual to keep off the government’s radar.
What are some other considerations?
Despite declining numbers, hundreds of thousands of Kiwis still rely mostly on cash. Respondents to RBNZ’s queries reveal that many feel less anxious having physical cash on hand. Its demand spiked at the start of COVID, prior to the lockdowns and during recent extreme weather events like Cyclone Gabrielle proving that, in times of crisis, cash is still king.
Ironically, CBDCs may provide an account for those that are “unbanked” or not included in New Zealand’s mainstream financial sector.
RBNZ has said there is no hurry in implementing a CBDC and recognises “the need for regulators to be cautious in a fast moving area”.
