How digital cash can help Pacific people

The Reserve Bank of New Zealand (RBNZ) Te Pūtea Matua is considering a central bank digital currency (CBDC), or “digital cash”, which it says could help Pacific communities who are excluded from the traditional banking system.

This is not a new concept. People are already using digital forms of payment. Other central banks around the world have also been looking into this.

So, why is the government exploring such a currency?

Speaking to William Terite on Pacific Mornings, Director of Money and Cash, Ian Woolford, first explained that digital cash is, as the name suggests, cash in a digital form.

"If we look at the New Zealand financial system, and on many levels it's pretty good, but it does have some challenges.

"Financial inclusion is one of the things we worry about as a Central Bank. We're doing a lot of work on the cash side because there are about eight per cent of New Zealanders that are wholly reliant on the cash system.

Watch Ian Woolford's full interview via 531pi’s FB below.

"That could be because they're unbanked. We do worry about providing a form of the New Zealand dollar that everyone can access."

According to the Ministry of Foreign Affairs and Trade, remittances to the Pacific, including Recognised Seasonal Employer (RSE) scheme workers' remittances, have been worth around $852 million each year, with around 30 per cent coming from New Zealand

RSE workers in Aotearoa alone send around $41m a year to the region.

In terms of remittances, Woolford said they have been consulting on various digital cash features, and although they have yet to discuss remittances, they know it's important to Pacific people.

"One of the things that will be really important is the ability to send money off-shore and at a low cost.

"We will need to think about who can open New Zealand digital cash accounts, so obviously residents of NZ, but we need to think about New Zealand dollarised countries.

"At the moment remittances is a real challenge and it is costly to send money overseas and so that international dimension is very much in our minds as well."

Digital cash can be used in the same way as physical banknotes but without the physical element. Photo/Unsplash

For now, digital cash could still help Pacific communities and communities in general.

As Woolford said third-party services, whether a bank or not, could tailor how it's accessed, based on need.

"That's one of the reasons why we talk about third-party providers.

"So, rather than just saying you can only access this sphere of a bank, we want to open it up so that you can get some innovation, some competition into the sector to make it hopefully cheaper for everyone to access it, but also to get in third-party providers that might want to work with particular communities."

Woolford said it could assist people with cognitive services, or considering not everyone has a smartphone, third-party services could tailor how their clientele access and use digital cash "in a way that suits the community and the needs of the people".

He said currently the only way people could access Central Bank money, or "the official money of the country", was through banknotes and coins.

He said digital cash could add another avenue for people to access that money, but it was not to replace cash.

"We're big fans of cash and we want it to be available for as long as people want to use it."

Concerns have been raised about opening the door to digital cash and the University of Auckland Business School's Professor of Experimental Economics, Ananish Chaudhuri, wrote about the dangers.

Chaudhuri spoke on both the benefits, such as financial inclusion Woolford mentioned, and the potential negatives, such as the implications it could have on civil liberties.

"A key issue with CBDCs is their programmability. It’s possible to make sure that CBDCs aren’t used for specific purposes, for example purchasing addictive substances," he said.

Chaudhuri also said that in light of the Central Bank's concerns over climate change, where they could effectively "curb the use of digital cash in ways that are considered environmentally risky, such as international travel".

"Digital cash may also come with expiration dates, meaning money held in this form must be spent by a specific time.

"This may help in recessions by forcing people to spend money, thereby boosting aggregate demand, but it would have significant implications for individual rights and liberties.

“Increasing the financial control of a central authority like the RBNZ will, in my opinion, spawn a giant monopoly with little oversight and the potential for abuse.”