There was, during the global rush of governments to help businesses affected by Covid survive, an issue that graphically showed why a digital currency system controlled by central banks (not commercial banks) is a good idea. .
Power Finance CEO Dave Corbett said his fintech is “extremely supportive” of the Reserve Bank of New Zealand’s discussion paper on a central bank digital currency (CBDC) – and offers the example of l help people during the pandemic.
New Zealand and the United States have taken different approaches. In the United States, it became clear that the only reliable way to get relief money for Americans was through Pony Expressâ¦ no, we’re kidding, but the reality was almost as old: checks.
Called Economic Impact Payments, the checks were sent to 35 million US businesses. Somehow they all had the words “Donald J. Trump” printed on them – almost as if companies were receiving funds from Trump’s coffers, as opposed to the state.
Checks were not sent to all intended recipients. The addresses had changed in many cases and the bank account numbers were incorrect or nonexistent. There were other hurdles – including the IRS insisting that some people wouldn’t receive theirs until they filed tax returns.
In New Zealand, the Reserve Bank created the Funding For Lending program in 2020, making $ 28 billion available to commercial banks at lower cost so they can lend to businesses at very low rates. However, only $ 6 billion has been taken so far. A similar situation arose when the business finance guarantee program was introduced during the March 2020 lockdown.
Corbett says both scenarios would have been hugely successful if the delivery method had been through a digital currency, controlled by central banks: âIt creates a direct relationship between state and citizen,â he says. âOur current franchise model in New Zealand, where RBNZ operates through commercial banks, is not very effective when it comes to helping the state help citizens. persuade commercial banks to play their role. “
This is just an example. Corbett says the CBDC is part of the future of money and offers “great benefits involving agility and connectivity with citizens.” The Reserve Bank’s consultation paper states that a CBDC “has the potential to act as a catalyst for innovation and competition.”
CBDCs will be a catalyst for a big step forward in financial evolution and customer experience – Corbett says the Telegraph replaces the Pony Express, also comparing it to the shift from the metals and coins financial system to a system paper cash.
Your bank, he said, would effectively be in your mobile phone – enabling a whole host of innovations and new technologies, following on from how Covid-19 has created a growth environment for businesses moving towards online operations while many bricks and mortar establishments have suffered.
CBDCs can also help change the world by supporting a new kind of green finance. Helping finance the green transition and monitoring climate change is the world’s biggest problem – achieving positive climate change would cost around US $ 100,000 billion – and CBDC technology is part of the solution.
CBDCs allow money and data to connect, speak the same language. They provide the basic digital currency that enables the creation of financial instruments to literally link payments to measured environmental outcomes. This interoperability will allow people to participate in rebuilding finance as a better version of itself, he says.
Corbett says US, the world’s leading financial markets, is moving closer to a CBDC with President Joe Biden’s currency comptroller candidate Willow Omarova, a recognized hawk when it comes to central bank digital currencies . China is already moving towards a digital renminbi, and more than 80% of the world’s central banks are planning to launch digital versions of cash, including the Bank of England.
A CBDC is not like Bitcoin – the cryptocurrency that rocked the financial world as well. While Bitcoin is a semi-private technology, CBDCs should be tied to digital identities that improve transparency, meaning less risk of money laundering or terrorist financing.
A CBDC won’t come with the environmental challenges of Bitcoin as it won’t have to rely on energy-intensive ‘mining’ to keep the currency running – but can instead embrace blockchain technology improvements since launch. of Bitcoin over ten years ago.
“We are delighted that the Reserve Bank is now addressing this whole issue,” Corbett said. “We believe it is timely and that they are preparing New Zealand to be able to take advantage of this shift in financial thinking.”
Some features of a New Zealand CBDC in the Reserve Bank consultation paper include:
- People could make payments using RBNZ digital dollars, which would accompany cash, not replace it.
- This would defend New Zealand’s monetary sovereignty against, for example, the rise of stablecoins by giant foreign tech companies that could replace the New Zealand dollar for day-to-day transactions, thus reducing the capacity of the Reserve Bank. to influence interest rates, inflation and employment.
- Tax evasion and money laundering would be more difficult.
- This would impact the private banking system, especially in times of financial uncertainty when some people panic and seek safer places to store their wealth, causing a rush on the banks.
- People with low incomes are on average more heavy users of cash, and the Reserve Bank said digital dollars could provide a basic and inexpensive way to pay and save.