Reserve Bank of New Zealand publishes paper on virtual currencies benefits

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The Reserve Bank of New Zealand becomes one of the earliest banks to cover the benefits of cryptocurrencies in an issue paper. The Reserve Bank of New Zealand mentioned its own perspective on cryptocurrencies, highlighting certain key aspects of these assets. 

The issue paper discusses many aspects of creating a Central Bank Digital Currency or CBDC. There are certain points to discuss the possible risks and benefits of integration of a CBDC in the traditional monetary system. 

Any comments on the points mentioned in the issue paper will be accepted until 6th December. While many possibilities are available for the use of a CBDC, the government is seeking to create an ‘all-purpose CBDC.’

Reserve Bank of New Zealand on the ‘general-purpose CBDC’

A ‘general purpose’ central bank digital currency is one that can be used by any business or individual that has the need to use it. The paper said, 

Such a ‘general-purpose’ CBDC would be closer in function to cash and better placed to fulfill the role of central bank money than a ‘wholesale’ CBDC.’

The Reserve Bank of New Zealand also mentioned that this CBDC would actually be a form of digital cash that will be released into circulation along with paper cash. 

The paper also clarified that there will be a balance between privacy and transparency or traceability in making payments using CBDCs. This balance would help the government maintain its tough stance on money laundering and other crimes. 

Two CBDC designs 

There are two designs that the government has proposed in the issue paper. The first design is the “account-based” currency and the second is the “token-based” currency. There are a number of differences between the two designs. 

The account-based CBDcs are those that belong to the traditional account-based monetary system while the token-based CBDCs are those that belong to the public blockchain and decentralized technologies.

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