The push to launch a central bank digital currency

<p>Of Interest: In this episode Gareth Vaughan discusses the progress the New Zealand central bank is making on its digital currency development with Ian Woolford.</p><p>The Reserve Bank of New Zealand (RBNZ) considering launching a central bank digital currency (CBDC) is in part a defensive move to protect it and NZ's monetary sovereignty, says RBNZ Director of Money and Cash Ian Woolford.</p><p>The RBNZ is <a href="https://www.atlanticcouncil.org/cbdctracker/" target="_blank"><strong>one of dozens of central banks around the world</strong></a> considering introducing a CBDC. A few, including those of The Bahamas and Nigeria, have already done so.</p><p>A CBDC is the digital form of a country’s fiat currency. That means an RBNZ issued CBDC, like the physical NZ dollar, would be a liability of the RBNZ, backed essentially by trust in the Government and its institutions. By law the RBNZ is the sole supplier of NZ banknotes and coins, with this being a key raison d'être for the central bank.</p><p>Although most financial transactions are already done electronically, Woolford points out these are done using digital forms of private money.</p><p>"Most people use private money in the form of their bank accounts with registered banks in New Zealand. I guess the main point of difference is you are effectively taking a credit risk with your bank, so your claim is on the bank. Whereas with a central bank digital currency your claim would effectively be on the Government, which typically and is the case in New Zealand, has a higher credit rating than private institutions," Woolford says.</p><p>He says the RBNZ hasn't yet made a formal decision on whether it will launch a CBDC or not, and it's likely to be years not months before it does. Nonetheless he says the RBNZ considers that a CBDC "will make sense."</p><p>In a world of cryptocurrencies, stablecoins and big technology companies such as Apple, Facebook and Google pushing into payments and financial services, Woolford acknowledges there's a defensive aspect to the RBNZ