Reserve Bank of New Zealand – Te Pūtea Matua: In Conversation with Ian Woolford, Director of Money and Cash

Posted on Apr 20, 2023 by Ian Woolford, Director of Money and Cash, Reserve Bank of New Zealand

Central Bank Payments News (CBPN): The Reserve Bank of New Zealand initiated its Future of Money consultation in 2021, which grew out of an earlier consultation on the Future of Cash. As a starting point for those who may be less familiar with the Future of Money work program, can you discuss the impetus for the consultation and why preserving access to central bank money figures so prominently?

Ian Woolford: The genesis was around 2017 and early practical thinking on what might be needed to update or replace our current vaulting arrangements as they approach end of life. Consideration of obvious questions about location and operating models required understanding cash demand and flow through the cash system which, in turn, put falling transactional cash use in sharper focus under what was our Future of Cash program. This work affirmed the value of cash to financial and social inclusion (among other benefits), to commit to providing cash for as long as New Zealanders wanted and needed it, and to advocate for improved efficiency and resilience in the multi-party cash system. It also provided impetus to establish a new money and cash policy function in what became the Money and Cash Directorate, and for enabling in the recent update of our institution’s governing legislation our stewardship role for money and cash.

So, our work broadened from thinking about the future of cash to effectively that of the future of central bank and private money and payments, as is reflected in four consultation papers published in late 2021 and 2022. Alongside enhancing the cash system and our own vaulting arrangements, we’re exploring the potential for a Central Bank Digital Currency to circulate alongside cash, any need for regulatory intervention to better manage the risks and opportunities of private innovations such as stablecoins and crypto assets, while also building our stewardship function.

Preserving access to central bank money features so prominently because we see it as vitally important. As use of central bank money in the form of physical cash declines as a proportion of transactions, and as new forms of private money have the potential to erode the dominance of local private money and its relationship to central bank money, it raises questions about monetary sovereignty. Add to that the important roles central bank money has in providing for inclusion and as a value anchor to private money through the one-for-one convertibility promise. Another very important motivator for us is that we also think digital forms of central bank money could play an important role by spurring and facilitating innovation and efficiency in the financial system.

CBPN: Responses to the stewardship and cash system redesign papers reflected an overwhelmingly positive view of cash, its cultural significance in New Zealand – Aotearoa, and the importance of ensuring continued access to it. Can you discuss the unique challenges facing the Reserve Bank in maintaining access to banknotes and coins, while simultaneously developing a payments infrastructure and regulatory regime that reflect the current and future needs of consumers and the broader economy? It seems like a difficult balance.

Ian Woolford: Let me start by saying that I believe that maintaining the cash system is both a current and future need. So I don’t buy into a binary narrative involving the death of cash and the rise of digital alternatives because these are not pure substitutes for each other, and we know from our research that the public values the option of cash. As such, both digital and physical central bank money will be needed to help society and financial systems function, and central banks will maintain their keen interests in the stability of institutions and services, and in monetary sovereignty.

At a practical level this is also about ensuring product and service offerings — whether existing or new — support inclusion, offer choice, promote competition and innovation, are resilient to risks and threats (whether natural, technological, criminal, etc.), and consider climate impacts. The strong message that we take from public feedback, experience of natural disasters and the pandemic, and research is that physical and digital, public and private money forms — and having choices around these — are all important.

Particular cash challenges for New Zealand include ...

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