A digital version of the New Zealand dollar would not give the Reserve Bank the means to oversee nor intervene in our spending but it would allow it stay relevant and hold its power over the monetary system.

“It is important to be able to maintain monetary sovereignty,” the Reserve Bank of New Zealand’s (RBNZ) head of money and cash Ian Woolford told Markets with Madison.

“At the moment the cash system is under serious pressure, so that form of central bank money is getting less and less.

“That’s kind of a big existential reason.”

Like most central banks around the world, ours was consulting with the public on introducing a central bank digital currency (CBDC) - or as the RBNZ called it, digital cash.

Woolford, who was leading the CBDC consultation programme, said it would provide citizens with more choice over how they transacted and where they deposited their money, and potentially improve competition in our payments system.

“We’ve been quite clear that we think the payment system in New Zealand could be more competitive.

“And we actually think that a central bank currency, or what we’re calling digital cash, can have a bit of an impact. There can be a real spur to competition.”

He said a CBDC could cause consumers to circumvent commercial banks entirely, because wallets could be provided by other parties.

But he expected the impact would be “at the margin”.

Banks had so far responded with a “slightly nervous vibe,” Woolford said.

The RBNZ believed central bank-issued currency played an important role in the economy, he said, including because it gave it the power to implement monetary policy such as rate hikes and cuts.

If the RBNZ did not adopt a CBDC, Woolford warned it could lead to a future where central banks disappeared and our currency was made up of numerous stablecoins of varying issuers and valuations.

“This is getting back to the pre-central bank kind of era.”

On the surface, a CBDC would not seem too different to the digital dollars in our online bank accounts. It would still be money made by the Reserve Bank and circulated through third parties - banks or financial technology companies.

The difference was in the backend, where any claim on the currency would rest with the Reserve Bank as its issuer, not with the commercial provider.

When asked how the RBNZ would ensure our digital currency was secure, after it suffered a cyber attack in 2020 and data breach in 2021, Woolford said it was yet to determine how that would be ensured, but promised it would be.

“Trust is paramount and it will need to be extraordinarily secure.”

Curbing other public concerns, he said a CBDC would not give the state the ability to oversee nor intervene in citizens’ spending.

“I can see the link that people make and absolutely don’t want to say it’s not a warranted concern.

“It’s incumbent on us to make sure people understand the protections and the mechanisms and the constraints.”

The CBDC was still a concept, and the hard-coded safeguards were still years away from being tested and finalised.

The process to approval, which would likely require a law change, was expected to continue until 2030.

“It’s all grounded in meeting the needs of the New Zealand public. It’s not grounded in a profit motive,” Woolford said.

“Why should you trust us? Well, as an institution, we’ve been issuing money that people have trust and confidence in since 1934.”

Watch Ian Woolford discuss the Reserve Bank’s reasons for considering a central bank digital currency in today’s episode of Markets with Madison above.

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Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.

Madison Reidy is host and executive producer of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.