A digital currency issued by the Reserve Bank of New Zealand could hit the markets in the coming years as the bank seeks another payment alternative to the private sector and cash. 

The idea of federal digital cash opens up for consultation from today and RBNZ's director of money and cash Ian Woolford told Mike Hosking on Newstalk ZB this morning that the bank believes there's not enough innovation and efficiency in the financial system.

He considers New Zealand to be a "fast follower" of the tech of such payment types, rather than being the leading edge of online currency.

"There's a lot of stuff the guys have to sort out - you know, cross borders, settlement protocols and some of the international rules that bodies come up with," he told Hosking.

"But, for us, we're not looking to blaze the trail here, we're looking to learn from others but be a fast follower because we do think it's quite important and it's something the financial system needs."

When asked why New Zealand would need digital currency to begin with, Woolford agreed with the sentiment that online payment schemes like crypto could be likened to "the wild west", which was pushing countries to act faster in this space.

He also claimed people appreciate having a choice in their method of payment and digital currency would be another way for people to use their funds.

"Even though people aren't using cash as much, we know most people highly value having the option of using cash and, in that sense, this would be another counterpart," said Woolford.

"The idea of digital cash is not to get rid of cash, it's to give people choice so they could use central bank digital cash, bank notes or coins or private sector forms of money."

Hosking told Woolford that some people believe the Government is trying to get rid of cash altogether to gain full control of online finances. However, Woolford shut the notion of this idea down.

"We are at pains to point out to people at every turn that we deeply care about cash and we're doing a lot of work to make sure it's there for people when they need it."

Woolford was also asked about the risk profile of a government-backed online currency, whether the value would rise and drop as rapidly as some currencies such as Bitcoin.

Woolford answered by outlining the types of currency available.

"There's a Bitcoin-type product which is really a speculative investment - and yes, it goes up and down and all over the place. The other form of it is what they call stablecoins and that's really an attempt for the crypto industry to try and make a blockchain-based version of money so people can use it for transactions," he told Hosking.

"Now that hasn't really worked because you can say crypto isn't a currency and stablecoins aren't particularly stable.

"I think one of the things that will come out of this, not just in New Zealand but around the world, is the settling down of the crypto industry because it will need to be regulated in a sensible way, it'll need to get some credibility, and it will need to have proper backing to the stablecoin and that's where central bank currency and central cash come in as well."

A spokesman for Minister of Finance Nicola Willis said the minister will shortly be receiving advice on work around digital currency and will consider it in due course.