Blockchain-based digital currencies like Bitcoin, Ethereum, USDT and USDC, are decentralised, electronic money secured by cryptography and recorded on a tamper-proof ledger called a blockchain, which enables peer-to-peer transactions without central authorities like banks.
New research co-authored by University of Otago economist Dr Murat Ungor said New Zealand’s monetary sovereignty was under threat and the nation needed to choose its response wisely.
‘‘For the first time in history, private companies and foreign governments can offer digital currencies that compete directly with our national currency.
‘‘Money is 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.’’
But cryptocurrencies like Bitcoin operated outside government control and private companies were issuing stablecoins which were digital tokens pegged to major currencies like the US dollar.
If they were to take off in New Zealand, that could weaken the Reserve Bank of New Zealand’s ability to transmit monetary policy and maintain currency sovereignty, he said.
The Reserve Bank was now investigating bringing in a digital currency by about 2030 and he argued government policymakers should design a central bank digital currency (CBDC), Dr Ungor said.
Without a CBDC, he said New Zealanders might become increasingly dependent on private payment platforms or foreign digital currencies and large technology firms or overseas institutions might set the rules for how people pay, save and transfer money.
‘‘Then you would notice in a crisis, that your digital money stopped working, that your bank could not help you, that prices were volatile ... and that there was no government or central bank you could hold accountable.’’
A CBDC would be a digital version of physical banknotes in people’s wallets and backed directly by the Reserve Bank.
His research favoured an ‘‘indirect model’’ where interactions would still be with a commercial bank or payment app, but the underlying money would be backed ‘‘one-for-one’’ by the Reserve Bank.
‘‘Banks would handle customer service, innovation and privacy protections, while the Reserve Bank ensures the money itself is safe and stable.
‘‘Safeguards like holding limits, tiered interest rates, and restrictions on functionality would help prevent bank runs during crises, while still offering genuine utility.’’
A CBDC was not about changing how people buy, Dr Ungor said.
‘‘It is about making sure that when you do buy ... the money in your phone still means something tomorrow, next year and during the next economic downturn.’’
