TL;DR
My thoughts on a new issue paper from the Reserve Bank of New Zealand about their framework for approaching the future of money AKA “Crypto”.
Overall pretty lukewarm, a bit of fluff, but some positives and no knee-jerk reactions.
I don't think widespread Bitcoin adoption in NZ is inevitable, and so it is important to monitor and see how legacy institutions are acting.
Though there are many misconceptions in the document, there are some positive insights and good nuance. Seems to throw stablecoins and shitcoins under the bus, but provides some legroom for Bitcoin. Worth sitting down and reading, at the very least, for an idea of the lens which they are looking at this through.
Note: I am not an expert in this space, so this is just another Kiwi Bitcoiner pleb’s hot take!
Overview
In 2021 the Reserve Bank of New Zealand (RBNZ) launched a public consultation on the “future of money”, with three core issues looking at Stewardship of money, CBDCs, and Cash system redesigns.
Recently, another paper has come out focussing on “the RBNZ’s proposed approach to the opportunities and challenges from new forms of private money such as cryptoassets, including stablecoins.”
Effectively the paper outlines the proposed approach and guiding principles that the RBNZ is looking to take in regards to innovation in money (AKA crypto), and the RBNZ is seeking feedback on this approach.
To be clear, this document is not regulation or law, but a hint at the emerging intent of a central bank, their approach, and way of thinking.
I thought it would be worthwhile to step through my initial reading of this document and points of interest.
Thoughts
Stewardship as a concept (Neutral)
Firstly, the concept of “Stewardship” is peppered throughout the document. This seems to have emerged more clearly with the Reserve Bank of New Zealand Act 2021, which replaced the original 1989 Act.
This interpretation of Stewardship seems to come through the new overarching financial policy objective of ‘protecting and promoting the stability of New Zealand’s financial system’ subtly replacing the previous objective relating to a “sound and efficient financial system”. A small but important word change.
As the document states:
“Our main interest is in ensuring the core roles of central bank money as a trusted value anchor and in supporting inclusion and wellbeing. However, we also have a broader interest in money and payments, given that central bank money is impacted by developments in the wider money and payments system.”
A clear focus on risk and regulation (Neutral)
A theme throughout the piece is a focus on the risks associated with cryptocurrency. Overall it takes a conservative, but pragmatic approach. The RBNZ is clearly aware of the innovation and pace of change happening in money and feel they need to be ready to “do something about it”.
Concerns for RBNZ include:
- Concern about its ability to “manage” and use levers such as setting the official cash rate (central bank interest rate).
- The risk of fracturing trust in the current system.
- Non-NZD money impacting RBNZ ability to implement monetary policy.
- The balance between risk and opportunity.
- Declining use of cash as a public alternative to private money.
- The growth of cryptoassets without regulatory safeguards, or a value anchor in central bank money.
They clearly outline their guiding principles (Positive)
One positive takeaway is that this document clearly outlines the guiding objectives and principles that the RBNZ is using.
I think of this as knowing the kind of ‘glasses’ they are looking at the world through, which in turn reveals what they are thinking.
Examples of these “prior” assumptions that RBNZ have include:
- Competition: They see competition as a foundation for trust and efficiency in private money.
- Choice: competition enables more choices, but people’s ability to effectively exercise choice matters too.
- Trust: they think the current level of trust in private money across the board should be preserved.
- Same risk, same regulation: they think there should be a level playing-field between different forms of private money.
They also talk about ideas such as “inclusion”, “well being”, “community”, etc, which enables arguments for the benefit of Bitcoin such as cheap fees for lower income people, banking the unbanked, etc.
This is powerful because by outlining their stance and not being just a blackbox, the arguments in support of Bitcoin can be articulated more effectively to respond to this.
More Clarity (Positive)
Some statements in the document are positive and provide further positional clarity:
“To be clear, we are not proposing to ban the use of certain coins or to limit how people choose to pay and be paid. There is currently no restriction, for example, on opting to have one’s wages paid in bitcoins, foreign currencies, community ‘currencies’ or other tokens, provided such choices do not affect others.
In fact, we generally welcome well-grounded innovation that increases diversity in the forms of trusted money and payment options, as this supports choice and competition.”
Of course I have no doubt that they could memory-hole anything in this document and do a 180, but every little tidbit of positive or even neutral sentiment is good for Bitcoin as it provides “legroom” for legal experts and advocates to push back in the case that the fabled bitcoin ban hammer comes out.
Critical of big tech (Neutral)
The document has some criticisms of banks and big tech and their ability to bundle things up:
“The emergence of new technologies can help bring more competition to money and payments. However, such benefits may be reduced or compromised. Large social media or online shopping networks (‘Big Techs’) can opt to ‘re-bundle’ money and payments services with their platforms, similar to how money and payments products are currently bundled with banking and other services like insurance, mortgages or credit cards.”
CBDCs, more and more (Negative)
More and more discussion of CBDC, normalising and promoting it as a sane possibility.
“In the future, New Zealand may have a central bank digital currency (CBDC). A CBDC would be a digital publicly-provided counterpart to private money, which is already digital. It may make central bank money a more effective lever to incentivise competition and innovation, and potentially lessen the need for more stringent regulation.“
Stablecoins in its sights (Neutral / Negative?)
Conflates shitcoinery with Bitcoin (under the guise of “Crypto”).
“Volatility in crypto-markets, including the recent collapse of algorithmic stablecoin TerraUSD and FTX, is a hallmark of an industry still developing, and further consolidation may come as the market matures.“
“Stablecoins, also pose a range of further risks related to the stability of the asset's value, the ability and costs of redeeming the stablecoin for fiat currency, and the solvency of the issuer of the stablecoin. It is important that these risks are adequately managed, including through regulatory measures where needed.”
Retail Implications (Confusing)
They say:
“At the same time, we are sceptical of claims that crypto-based, e.g. the likes of bitcoin or ether, payment solutions will always outperform conventional solutions across all dimensions of speed, scalability, convenience or costs. Such claims have yet to be proved.”
Then go on to say:
“Incidentally, the use of third-party (or ‘layer 2’) intermediation appears to offer promising responses to such trade-offs.”
In NZ, the new Retail Payments Act has recently come out, which aims to reduce the fees that NZers pay for point of sale card transactions etc, which are very high by global standards.
I think there is a moment here where the legislation is crying out for disruption and competition in the retail payments space, which is dominated by legacy EFTPOS card network.
A Lil’ bit of Mining FUD (Negative)
They could not help but quote climate FUD figures from the recent Whitehouse OSTP:
“The implications can extend beyond financial or economic regulations. One example is climate change and ongoing concerns about the impact of some types of crypto-assets which are energy intensive. It is estimated that the crypto-mining sector in the US represents between 0.2% and 0.3% of global greenhouse gas emissions.”
Outcomes: A Monitoring Framework (Neutral)
Basically the only real outcome from this that they are actually proposing is the development of a "monitoring framework" to keep tabs on how things are emerging and take action if necessary. RBNZ is obliged to do this as part of the Act.
This framework would look at innovations happening and the risks and possible regulation required. They would monitor how NZers are using payment methods for day-to-day transactions etc. They also would identify non-economic factors such as inclusion, wellbeing, and the social impact in some communities to be able to send remittances cheaply, etc.
Conclusion: We need some more eyes on this.
This document is a struggle to read because you have to “unpick” the political talk and veiled nuance.
New Zealand is not a big place, and we simply need more eyes and discussion around these topics.
Overall though, I feel positive that this document continues to set a precedent of negotiation and reasonable and pragmatic response from a legacy institution. I don’t see any major ban hammer-type statements or knee-jerk reactions.
If there is anyone else in NZ or internationally who would like to read through and comment or connect it would be much appreciated!
- CE