The Reserve Bank called for submissions to its proposed approach to new forms of private money such as cryptoassets, including stablecoins.
It is part of its work on the Future of Money. You can find more about its proposals around Private Innovation. Here’s a link to the issues paper (PDF) to which our responses below refer.
Positive Money used the opportunity to take a step back from the technology and focus on the principles and assumptions that will influence our central bank’s thinking.
In particular, the proposal highlighted four assumptions that will guide the Reserve Bank’s approach to private money innovation.
Competition: a competitive market with effective incentives for innovation and continuous improvement is the foundation for trust and efficiency in private money;
Choice: a competitive market provides more choices for New Zealanders. However, choices in private and central bank money need to be meaningful to support both market discipline and inclusion;
Trust: we value the high level of trust in private money across our current system, regardless of who issues the money. This means that users of money must be able to trust money is what it says it is worth, and that money can facilitate economic exchanges efficiently and with minimum transaction costs; and
Same risk, same regulation: there should be a level playing-field between different forms of private money. Regulation should be calibrated to the new technological context and adjusted where risks differ, or new risks emerge.
Our response follows.
Our response to question 1 on page 14:
Do you agree with the core drivers, assumptions and high-level approaches that we have described in relation to our work on private innovation in money?
We take issue with the assumptions that guided your approach – section 2.3.
Competition
Competition: a competitive market with effective incentives for innovation and continuous improvement is the foundation for trust and efficiency in private money;
Our assertion
We do not believe that a competitive market is the model for money creation. Money will be created to further the interests of those creating the money and not the society the money is intended to serve.
The conversation relating to private banks creating the bulk of our currency, that is not backed by the Central Bank, is only just opening up. We consider that you would have more respondents if your money tree narration was widely understood.
The general public of New Zealand has been disenfranchised from your Future of Money process, through a lack of education on the current state of our banking system.
Choice
Choice: a competitive market provides more choices for New Zealanders. However, choices in private and central bank money need to be meaningful to support both market discipline and inclusion;
Our assertion
Also, as in question 1, the vast majority of New Zealanders are unaware of the current state that provides choices in private and central bank money. As such, they are unable to contribute to this question in a meaningful way.
Trust
Trust: we value the high level of trust in private money across our current system, regardless of who issues the money. This means that users of money must be able to trust money is what it says it is worth, and that money can facilitate economic exchanges efficiently and with minimum transaction costs;
Our assertion
We do not believe that there is a high level of trust in private money across our current system and we would be interested to see the research that backs up this assertion. The vast majority of our money is created by private overseas owned banks with a profit imperative.
The majority of New Zealanders assume that the money in their bank account is backed by the Reserve Bank and not, for the most part, an IOU from a foreign owned bank. Any trust in the current system would be sorely tested if this became common knowledge.