Reserve Bank rules out digital cash . . . for now
The Reserve Bank will not issue digital cash – yet.
The central bank’s deputy governor, Geoff Bascand, said it had looked at whether it should issue a digital version of cash, potentially to sit alongside banknotes, or even replace them.
But it concluded that issuing digital currency with a value on par with cash could destabilise the privately owned banks.
Bascand, who was speaking at the Payments NZ conference in Auckland, said central banks all over the world had looked at issuing digital currencies alongside the banknotes and coins they have printed and minted.
There were pros and cons to doing so, but currently the cons outweighed the pros.
‘‘A central-bank digital currency would be attractive to us if it could improve our currency distribution, payments efficiency and monetary or financial stability. But these benefits are by no means guaranteed, and could come at some cost,’’ he said.
To issue a digital currency, the Reserve Bank would effectively become a deposit-taker, offering accounts to individuals and businesses. It would pay no interest – but, even so, would be in direct competition with privatelyowned banks.
Depriving those banks of deposits could lead them to turn to overseas investors for funding, which could mean a higher chance of a financial shock destabilising New Zealand banks.
It could also cost banks profits, lowering their ability to survive financial shocks. And, in a crisis, ‘‘the presence of a low-risk digital currency could increase the probability and severity of bank runs,’’ he said.
Replacing actual cash in the form of banknotes and coins with digital currency appears possible, but cash use remained high, despite it being used only for a minority of payments.
‘‘We are not considering removing cash,’’ Bascand said. ‘‘Demand for cash continues to grow as a share of the economy, and currently sits at 2.7 per cent of GDP.’’
He noted also that cash was used extensively in Christchurch after it was hit by earthquakes because electronic payment systems were disrupted.
He said recent survey work by the Reserve Bank revealed 96 per cent of people still claimed to use cash.