New Zealanders rank concerns privacy and autonomy as the top threats posed by a prospective central bank digital currency (CBDC).
In a summary of feedback on a series of three ‘future of money’ consultation papers released last week, the Reserve Bank of NZ (RBNZ) notes both general public and financial institutions held fears of CBDC privacy breaches.
According to the RBNZ, the central bank intends to include privacy provisions as part of any CBDC design.
“We will investigate innovative privacy and anonymity-preserving mechanisms and technical solutions, learning from international experience. We will explore this through future experiments and proof-of-concepts,” the RBNZ paper says.
“This work will help illustrate in a practical sense how a balance can be struck between preserving privacy and anonymity, and achieving other policy objectives. It will help inform any decision on whether to proceed further, including to further consultation on more developed proposals.”
But many submitters appear to have grabbed the wrong end of the CBDC stick, the RBNZ says, with a strong negative tilt among the 6,404 replies received on the subject: by contrast the two other consultation papers covering ‘stewardship’ and ‘cash system redesign’ prompted 140 and 338 replies, respectively.
“It is not our intention to replace cash with CBDC even if we decide to issue a CBDC. This position was stated repeatedly in the CBDC and stewardship papers, reiterated in the cash system redesign paper, and affirmed in supporting communications activity,” the RBNZ says.
“However, partly due to the delay in issuing the cash system redesign paper, a significant proportion of respondents to the first two papers expressed understandable anxieties about the perceived displacement of cash by CBDC. We believe that many of these respondents expressed strong opposition against CBDC because of such anxieties.”
The CBDC concept does pose some difficult technical and financial system structural challenges, though.
“Our view is that CBDC and cash would be complementary, rather than conflicting,” the RBNZ says. “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.”
Most central banks are exploring blockchain-based CBDCs in response to private money initiatives that are encroaching on traditional banking territory.
In the US, for example, the central bank and private parties such as clearing house, DTCC, are road-testing CBDC systems.
Earlier this year, DTCC joined with The Digital Dollar Project to produce a CBDC prototype – known as Project Lithium.
Jennifer Peve, DTCC head of strategy and business development, said in a statement: “DTCC has for several years been experimenting, engaging and leading the conversation around the digitalization of financial markets, and Project Lithium represents the next major step in our exploration of DLT, tokenization and other emerging technologies.
“Project Lithium will lay the groundwork for the financial community to better evaluate the implications of a CBDC across the trade lifecycle, as interest in this style of funding continues to grow.”
Meanwhile, the RBNZ is committed to further consultation on any CBDC plans and other future-money initiatives.
