New Zealand could release its own form of digital currency, the deputy head of the country’s Reserve Bank has revealed.
Geoff Bascand used a speech in the Auckland to announce that the bank’s technology team was already exploring the possibility of creating its own cryptocurrency, to “ensure public access to legal tender regardless of the presence of cash”.
Central bank digital currencies (CBDC) could take the same form as cryptocurrencies: that is, being underpinned by distributed ledger technology. However, a more likely setup in this case – given the opposition in law to Bitcoin, Ethereum and the like – is that they will use traditional payment systems. Indeed, it’s thought the plans would involve the issuance of prepaid cards holding New Zealand dollars, allow it to operate alongside cash, rather than replacing coins and notes all together.
“A digital currency is easier and faster to distribute around the country than banknotes because it doesn’t need to be transported,” said Bascand, “but there would be new infrastructure costs if a central bank digital currency were introduced.”
Ahead of a meeting of finance ministers from the G20 in Argentina, Financial Stability Board Chair Mark Carney said that central bank-issued digital currencies were “a step into the unknown”. The FSB advises the world’s leading 20 economies on financial policy. Mark Carney is also the head of the Bank of England.
A working paper issued by the Bank of England in May suggested that CBDCs could pose an existential threat to commercial banks and “raise many fundamental questions about the architecture and operation” of financial systems.
CBDCs on the rise
Central banks worldwide are investigating the possibility of issuing their own digital currencies, fuelled in part by the tremendous rise in the value of cryptocurrencies. The lack of clear policy on CBDCs has led to a huge rise in scams, however.
Sweden has mooted the possibility of an e-krona. On June 25th, the Sveriges Riksbank issued a notice that: “on certain websites and in social media, false information is circulating claiming that the bank is selling e-kronas”. Fraudsters in the country are also taking advantage, claiming to be selling e-kronas on behalf of the Riksbank to steal money in low-tech phone scams. However, said the bank, “it has not been decided yet whether the Riksbank will issue and e-krona and it is not possible to buy them.”
Turkey was subject to a huge “national cryptocurrency” scam, which unravelled last month. Istanbul-based firm Hipper A.S, took $20m from 12,000 private and retail investors for the Turcoin cryptocurrency before both founders were arrested and the vehicle was revealed as a Ponzi scheme.
In Zimbabwe, the governor of the Reserve Bank was forced to issue a statement about “false and malicious” rumours of the introduction of a new currency. The July 18th circular by Dr JP Mangudya reads:
“The Reserve Bank of Zimbabwe would like to urge members of the public to dismiss, with utmost contempt, the fake article being circulated…Such counterproductive messages are being done with bad intentions to destabilize the economy as they cause alarm and despondency.”
Back in New Zealand, Geoff Bascand has warned that the uncertain state of play regarding the regulation of cryptocurrencies means that any decision on CBDCs is likely to be punted down the road.
“Currently, it is still too early to determine whether a digital currency should be issued,” Bascand said, adding that a blockchain-based system could reduce speed and efficiency and put financial systems in the way of “considerable risks”.