Today, the Reserve Bank of New Zealand (RBNZ) has presented a summary of responses (Summary of Responses) to the three consultation documents it published in the second half of 2021 on the ‘Future of Money’. The consultation aimed at gaining the public’s input on:
- the RBNZ’s role as steward of money and cash;
- whether it should offer central bank money in a digital form alongside cash; and
- the issues and high-level options available for redesigning the cash system.
Who needs to read it? Why?
This update will be of interest to all participants in the financial services industry, as some of the changes proposed, especially in relation to the potential introduction of a Central Bank Digital Currency (CBDC), are significant and wide-ranging, having attracted much comment from submitters. Therefore, the feedback provided to the RBNZ will likely have a strong influence on how it proceeds with its proposal. It will also be of interest to the general public, who will ultimately be affected by the actions taken by the RBNZ.
What does it cover?
In total, the RBNZ notes that 6,882 submissions were received across all three consultation papers. Of those:
- 140 submissions related to the RBNZ’s role as steward of money and cash;
- 6,404 submissions related to the potential introduction of a CBDC; and
- 338 submission related to the redesign of the cash system.
We summarise the key broad themes of the submissions below.
General themes in the reponses:
Concerns about the future of cash were repeatedly raised in the first two consultation papers. A significant number of respondents expressed great anxiety about the perceived displacement of cash by a CBDC, and opposed the CBDC on that basis. Many of those submitting stressed the important of cash, both to those who rely on it to live their lives and to New Zealand society generally. In response to these concerns, the RBNZ has stressed in the Summary of Responses that “[o]ur view is that CBDC and cash would be complementary, rather than conflicting. Care needs to be taken to ensure that the public can benefit from the innovation that may be possible from a CBDC, while cash is still there to meet other needs and to provide choice”.
Additionally, many submissions expressed concern around the potential loss of privacy associated with the introduction of a CBDC. Anonymity was seen as a key benefit of cash, a key reason to retain it, and a matter of human rights. In response to this broad concern, the RBNZ has stated in the Summary of Responses that “[o]ur proposed CBDC design principle of ‘cash-like’ reflects that future CBDC design options should at a minimum ensure privacy. The consultation further underlines that New Zealanders attach a particular importance to privacy, among other key aspects of policy/design”.
Finally, there was a misconception amongst some submitters that a CBDC decision was made with implementation imminent, and that this equated to a decision to go cashless. Submitters in this group complained that they had not been made aware of the CBDC consultation earlier, and so did not have sufficient time to evaluate the case for a CBDC (and, mistakenly, for some, going cashless). Several correspondents thought a referendum ought to have been called. A considerable portion of the feedback reflected a general distrust of public authority and the consultation process, rather than CBDC itself. In an attempt to assuage such concerns, the RBNZ has emphasised in the Summary of Responses that “New Zealanders must have meaningful opportunities to participate in the future development of their money. Our intention remains to use a range of different tools to engage with New Zealanders through our ongoing work, including public consultations, working and advisory groups, workshops, and other market research tools such as surveys and deliberative workshops”.
The Future of Money – Stewardship of cash
In relation to the consultation paper on how the RBNZ performs its role as steward of money and cash, most respondents indicated in-principle support for the stewardship objectives, role, responsibilities, and approach laid out in the paper. However, many thought that further clarification of the Reserve Bank’s vision for the future of money and payments was needed. Many also wanted more detail on what stewardship would look like in practice. They felt that they were unable to assess the merits and impact of what was being proposed thoroughly without such information.
The Future of Money – Central Bank Digital Currency
The RBNZ’s consultation paper on the potential introduction of a Central Bank Digital Currency (CBDC) attracted the most attention from submitters.
Concerns around the issuance of a CBDC fell within the following broadly themes and categories:
- a CBDC potentially displacing cash;
- privacy and anonymity;
- social inclusion of vulnerable groups who may be digitally excluded;
- the limited use case for a CBDC given existing alternatives both in digital bank money and cryptoassets; and
- cyber and operational risks given the reliance on digital infrastructure.
The Future of Money – Cash system redesign
Finally, in relation to the consultation paper on the potential redesign of the cash system, there was widespread agreement amongst submitters that the cash system is important and that a review is warranted. However, there were differences in views about the urgency and scale of the required reforms.
The predominant message from members of the public however was consistent with what was heard from the submissions on the consultation papers on stewardship and the introduction of a CBDC – namely, that cash plays an essential role in people’s lives economically, socially and culturally, and is at risk of disappearing, and that urgent action is needed. This message was reinforced by the submissions from community service providers, charities and consumer advocates.
We think that the responses to the consultation papers on the ‘Future of Money’ reveal that the RBNZ has work to do to convince some New Zealanders as to the merits of its proposals, especially in relation to introducing a CBDC.
Therefore, we welcome the RBNZ’s acknowledgement that “a significant amount of work remains to be done on policy development clarifying the stewardship role, further exploring the case for designing a CBDC, and redesigning the cash system to extend its future to meet need and demand”, and that they plan to conduct greater engagement with the public in relation to any proposal introducing a CBDC.
We also welcome the RBNZ’s reaffirmation that they understand and accept the need to keep physical cash, and that physical cash is here to stay so long as some of us need it. This helps to ensure financial inclusion – one of the Council of Financial Regulator’s key themes – so long as there are people with limited access to technology and who rely on physical cash as a means of payment.
If you have any questions in relation to the RBNZ’s proposals and how it may impact your business, please contact one of our experts.
This article was co-authored by Scott Yang, a solicitor in our Financial Services team.
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