More reliable than money in the bank? Digital currency needed to help NZ’s monetary sovereignty

A CBDC would be a digital version of physical banknotes in people’s wallets, backed directly by the Reserve Bank.
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A Reserve Bank-backed digital currency is necessary to ensure New Zealand retains its monetary sovereignty, one Otago University expert says.

Dr Murat Ungor and his former Master’s student Jack Buchan have published new research looking at threats to monetary sovereignty in an era of blockchain-based digital currencies and declining cash use.

He said the country should design a central bank digital currency (CBDC), which is something the Reserve Bank has been consulting on.

“Right now, when you check your bank balance, you are looking at a promise from your bank to pay you,” Ungor said.

“With a CBDC, that money would be a direct claim on the Reserve Bank itself, the safest form of money possible.”

A CBDC would be a digital version of physical banknotes in people’s wallets, backed directly by the Reserve Bank.

He said money was power. “The question is whether that power will rest with democratic governments accountable to their citizens, with large technology companies accountable to their shareholders, or with foreign governments pursuing their own strategic interests.

“For the first time in history, private companies and foreign governments can offer digital currencies that compete directly with our national currency.”

Ungor said monetary sovereignty was what allowed the Reserve Bank and government policies to manage inflation, ensure financial stability and respond to crises.

If it did not have that ability, the country could be more vulnerable to economic shocks.

The US has introduced laws favouring private stablecoin networks over a government-issued CBDC, which Ungor said legitimized private US coins as a major digital payment structure.

That could weaken the Reserve Bank’s ability to transmit monetary policy and maintain currency sovereignty if consumers and businesses were using the American options at scale.

He said the Reserve Bank was rightly exploring options, with a view to introducing a CBDC around 2030.

“My concern is more about pace and posture. The global landscape is shifting fast. The US has now legitimized private dollar-backed stablecoins, and major tech companies are moving aggressively. Accordingly, clear communication will be important.

“The RBNZ is asking the right questions, but people would like to see a clearer commitment to a model one that gives people direct access to safe central bank money while preserving privacy and letting banks innovate.”

He said Reserve Bank research showed people were worried about losing access to bank notes and coins and a CBDC that people did not trust was worse than none at all.

“Digital cash will not replace physical cash – this again requires more communication. The RBNZ is asking the right questions, but I’d like to see a clearer commitment to a model that gives people direct access to safe central bank money while preserving privacy and letting banks innovate.”

Ungor said Cambodia had been successful working through existing bans and mobile apps rather than trying to replace them.

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