Banking the economy in post-COVID
Aotearoa
A speech delivered to banking industry representatives in Wellington
On 31 July 2020
By Geoff Bascand, Deputy Governor and General Manager of Financial Stability
2 The Terrace, PO Box 2498, Wellington 6140, New Zealand
Telephone 64 4 472 2029 Online at www.rbnz.govt.nz
āpōpō
Hihiritia te ra, e tiaho ano ai
-
Harness the rays of the sun today, so that we may bring a brighter future tomorrow.
Introduction1
The COVID-19 health crisis has posed significant challenges for the New Zealand economy
and financial system and we expect it will take some time before we see a full recovery. The
immediate operational challenges for the financial sector have been successfully overcome
and the system has proved resilient so far, in part resulting from a stronger regulatory
framework and favourable economic conditions over the past decade. As we gradually move
past the challenges currently facing the banking sector, we expect issues such as alternative
monetary policy, accelerating digitisation and new competitive challenges will shape the
banking sector in the years to come.
In the short-term, business failures and rising unemployment will increase credit losses and
act as a drag on bank profitability. Low interest rates will reduce net interest margins (a key
determinant of banks' profits)
and may accentuate growth in non-deposit-taking, non-bank
lending institutions. While changing consumer preferences towards online banking and
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digitisation of payments which have been accelerated by social distancing may expose
differences in banks' technological capacity and cost structures.
In the face of these challenges, the banking sector could choose to hunker down and seek
to ride out the storm until the good times roll again. Or, the banking system could continue to
New Zealand's
step up and play a crucial part in supporting economic recovery and
maximise its potential competitive advantage of relationship lending and customer
information. How the banking sector chooses to respond to this crisis will have a major
influence on how the financial system evolves over the next decade.
Maintaining institutional resilience while continuing to serve customers in an uncertain
environment will demand expertise, courage and an unwavering belief that the people and
businesses of Aotearoa will find a way to come out of these challenges. Ultimately for banks,
maintaining the flow of credit to businesses and households will contribute to the stability of
the banking system. Longer-term, lower leverage, greater internal investment and risk
management, and increased competition portend lower expected returns for bank
shareholders than they have historically enjoyed. Evolving structural changes in the financial
sector pose less of an immediate threat than the pandemic crisis, but could prove more
disruptive in the long-term unless the sector responds to meet customer, investor and
1
I am very grateful to Tom Bird for considerable assistance in the preparation of this speech, along
with valuable comments from other Reserve Bank colleagues.
regulator expectations. For New Zealand, with its bank-dominant financial system, a vibrant,
innovative and sustainable banking sector is crucial to our collective wellbeing (Figure A).
- -
The COVID-19 crisis has reinforced the focus of the Reserve Bank Te Pūtea Matua on
resilience in regulatory policy settings, including the imperative of strong capital and liquidity
requirements. Our focus on risk management is also evolving so as to be attuned to
changing structures and dynamics in the financial sector, including the implications of cyber
and the economy's increasing reliance on
risks, FinTech, climate risks, financial inclusion
payments system stability. These longer-term structural changes highlight the importance of
a regulatory system and perimeter that can adapt to non-traditional financial entities, which is
a key consideration of the Phase 2 review of the Reserve Bank Act.
Figure A: Country-by-country bank assets to gross domestic product
% %
200 200
160 160
120 120
80 80
40 40
0 0
ITA ISL IRL
FIN ISR
NZL JPN LUX BEL EST LVA LTU
DNK AUS ESP PRT NLD FRA AUT DEU CHL TUR POL SVK USA CZE SVN COL
KOR SWE NOR GBR GRC HUN MEX
Source: World Bank (2018).
Resilience now and for the future
New Zealand's
To-date, financial sector has proved resilient to the dual health and economic
shocks, and indeed, supported the business and household sectors through strong business
continuity arrangements, the accommodation of many customers through the restructuring of
borrowing terms, and only a relatively modest tightening of lending standards. Looking
the ongoing health of New Zealand's financial institutions and provision of
ahead, ensuring
and 'credit crunch'
credit will be crucial to our economic recovery. A financial crisis on top of
for New Zealanders' wellbeing.
an economic crisis would be hugely disruptive The ability of
financial institutions to absorb shocks, manage risk and continue lending in the face of
shocks is foundational to our regulatory framework.
Banks'
business continuity plans have stood up well so far to this unanticipated and severe
event. Prior to COVID-19, no business plan had contemplated 100 percent of staff having to
work remotely almost overnight. Plans were not perfect, and of course there are lessons to
be learned, but overall people and technology responded well to support customers. Banks
managed to reassign staff from back office to front office, across geographies, and transition
from manual to digital channels very successfully. Staff had to adapt to working from home
with kids' television programmes in the background, while also balancing increasing work
demands with home-schooling!
New Zealand banks entered the crisis having built up strong capital and liquidity buffers in
the prior decade (Figure B). Prudential standards introduced since the Global Financial
Crisis of 2007/08 included liquidity requirements to ensure banks could support lending with
stable funding bases. In the early stages of the crisis, liquidity positions were highly
uncertain for a period of time, but buttressed by strong starting positions brought about by
the Reserve Bank's liquidity
requirements, liquidity has been ample. Having a more stable
funding profile allowed New Zealand's banks
breathing space to manage temporary
disruptions when funding availability in wholesale markets deteriorated. Since February, no
New Zealand bank has needed to issue term funding in these markets. As an additional
measure to support the banking sector during the difficult period, the Reserve Bank made a
number of liquidity facilities available that proved mostly precautionary, and itself transacted
in a number of markets to shore up market functioning.
Figure B: Measures of banking system soundness
Mar-08 Mar-20
13.4 23.5 87.8
64.8
7.9
7.1
Tier 1 Capital Ratio % of mortgages > Core Funding Ratio
(%) 80% LVR (%)
Source: RBNZ Capital Adequacy Survey, RBNZ LVR Lending Positions Survey, RBNZ Liquidity Survey,
registered banks' Disclosure Statements.
Likewise, capital metrics were strong going into this crisis, boosted by Basel III regulatory
requirements, a number of years of favourable economic performance, and preparations for
implementation of the Reserve Bank's Capital Review.
the impending The COVID-19 crisis
has underscored the importance of banks having sound capital buffers; increased provisions
for expected credit losses have, so far, been easily absorbed by existing capital buffers.
Healthy capital buffers are necessary not only to ensure banks survive crises, but to ensure
banks survive 'well' and are able to continue to lend to creditworthy borrowers throughout a
downturn. The Reserve Bank remains committed to fully implementing the outcomes of the
Capital Review. However, as we indicated this past March, this will be delayed one year and
not occur until July 2021.2 We expect to communicate further on the implementation of the
Capital Review by the end of the year.
Looking ahead, the deterioration of asset quality will likely mean further loss provisioning will
This could weaken banks' capital
be needed. positions. The Reserve Bank has initiated
stress tests of banks to assess their resilience to a significant worsening in the economic
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outlook. Modelling suggests that under severe but plausible scenarios, banks are likely
to maintain capital ratios above minimum requirements. However, there remains
considerable uncertainty about the future trajectory of the pandemic, and how this will affect
the New Zealand economy. Under severe enough scenarios, the viability of banks would
come into question.
Beyond the immediate COVID-induced economic stresses, low interest rates are likely to be
an enduring challenge for the banking sector. The decline in interest rates is a long-term
phenomenon, which can be largely attributed to a combination of proven monetary policy
credibility, a negative global output gap, as well as the downward trend of real interest rates
caused by global demographic changes and investment/saving forces. In the short-term, low
interest rates can be beneficial to banks by reducing funding costs, increasing asset prices
and lowering default risk. However, a prolonged period of low interest rates could pose
significant challenges to banks' business models and profitability.
New Zealand banks operate rather 'vanilla' business models focussed on intermediating
between borrowers and savers to generate the majority of their revenues. New Zealand
banks are also heavily reliant on retail deposit funding. An extended period of low interest
This compresses banks' -
rates may cause the yield curve to flatten. net interest margin the
2
See RBNZ press release, 'Financial system sound, and Reserve Bank providing additional support',
16 March 2020:
https://www.rbnz.govt.nz/news/2020/03/financial-system-sound-and-reserve-bankproviding-additional-support.
margin between the cost of banks'
short-term funding and the interest that bank charges on
long-term lending - which is the main driver of bank profitability. This, combined with an
effective lower bound on nominal deposit rates, may weaken bank profitability.
The consequences for lending institutions of very low interest rates are ones they need to
anticipate and manage.3 They are also consequences that the Reserve Bank will pay close
heed to. Specifically, when we make monetary policy decisions we consider the
consequences for financial stability as part of the decision-making process, including any
adverse consequences of, say, lower interest rates, alongside the benefits for financial
stability that may result from a quicker or stronger economic recovery.
Reserve Bank actions to support bank lending
For New Zealand, the COVID-19 crisis will likely result in the sharpest one-off drop in
(quarterly) economic activity in its statistical history. Early on in the pandemic, it became
apparent the COVID-19-induced recession and lockdown would have a significant impact on
New Zealand's
financial system. Many businesses and households were facing losses of
income, global financial markets were beginning to seize and supply chains were becoming
Cash flow and confidence became key to New Zealand's financial stability.
congested.
To support the provision of credit to the real economy and keep the financial system stable
the Reserve Bank worked alongside the Government and industry on a number of initiatives.
We cut the Official Cash Rate and lowered longer-term interest rates through the Large
Scale Asset Purchases programme.4 We also delayed a number of regulatory initiatives
(including implementation of the Capital Review), imposed dividend restrictions on banks
and insurers, facilitated loan deferrals with guidance on appropriate capital treatment,5
removed the loan-to-value restrictions, eased the core funding requirement and introduced a
number of term lending facilities.6 We are continually reviewing whether these rule-settings
3
Insurers are also impacted by falling interest rates. Whilst many insurers benefit, for some insurers
with long-term guaranteed liabilities low interest rates in the short-term increase the value of liabilities,
which has implications for insurer's solvency. In the low interest rates reduce the insurer's
long-term,
return on assets, which may require premiums to increase to compensate. In the past six months the
Reserve Bank has had to apply prudential licence conditions to several insurers to boost capital
buffers to mitigate the impacts of potential reductions in interest rates.
4
See RBNZ press release, 'RBNZ to implement $30bn Large Scale Asset Purchase Programme of
NZ Govt Bonds':
https://www.rbnz.govt.nz/news/2020/03/rbnz-to-implement-30bn-large-scale-assetpurchase-programme-of-nz-govt-bonds.
5
Ordinarily these loans would have been treated as non-performing with the consequence that more
capital would have been needed. This would in turn limit a bank's ability to extend loans and reduce
credit availability.
6
The Reserve Bank reduced the minimum Core Funding Ratio (CFR) requirement in March 2020 to
ensure that this requirement would not restrict the flow of credit to the economy. The Reserve Bank
intends to provide guidance on when and how the CFR minimum requirement will be increased back
to 75% in due course. Those institutions below the 75% minimum requirement will be provided with
adequate time to increase their CFR back to minimum levels.
remain appropriate, and expect to announce the future treatment of mortgage deferrals
soon.
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Taken together and without being too self-congratulatory these initiatives have had a
significant impact on supporting the short-term financial needs of households and
businesses. This was important to limit failures of businesses with good long-term income
prospects, and prevent mortgage defaults and foreclosures for borrowers facing temporary
decreases in income. We of course would not have been able to announce any of these
initiatives without the close working relationships with industry and the whole of government.
We thank the industry for the open dialogue during this time and the numerous supervisory
meetings held throughout lockdown. It is indeed times like these when strong relationships
are called upon to facilitate the difficult, but necessary, discussions.
Bank lending activity
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The banking industry faces many emerging challenges not least, retaining its social licence
to operate. Banks' initial responses to the COVID-19-induced lockdown was strong. Banks
stepped up and supported their customers with mortgage deferrals, liquidity facilities, and
covenant relief. Today, $20.6b of residential mortgages is currently deferring principal and
have moved to 'interest only'.7
interest payments, and a further $18.3b of mortgages This
represents 14 percent of the banking sector's mortgage book
(Figure C). But a key
determinant of the success of New Zealand's economic recovery to come will be the
willingness of banks to lend to productive, job-rich sectors of the economy so that we can
collectively take advantage of New Zealand's enviable position
of having eliminated
community transmission. Now is the time for banks to prudently drawdown on their buffers to
support their customers. Shareholders will have to be patient for longer-term payoffs, but this
forward-thinking, long-term approach will stand bank customers, banks, shareholders, the
financial system and Aotearoa in the best position.
7
The Reserve Bank has released new Bank Customer Lending metrics which provide more timely
measures of the changes in lending to bank customers since the onset of COVID-19. Find out more
at: https://www.rbnz.govt.nz/statistics/c65-bank-customer-lending-flows.
Figure C: Bank customer lending flows
$bn $bn
Interest only
14 14
Mortgage deferral
12 12
10 10
8 8
6 6
4 4
2 2
0 0
03-Jul 10-Jul 17-Jul 24-Jul
03-Apr 10-Apr 17-Apr 24-Apr 05-Jun 12-Jun 19-Jun 26-Jun
27-Mar
01-May 08-May 15-May 22-May 29-May
Source: RBNZ Bank Customer Lending flows.
Given banks are anticipating a deterioration of their loan portfolios, hunkering down and
tightening lending standards may seem to them to be the optimal response to perceived
risk. However, given banks dominant role in New Zealand's financial system
increased a
a 'credit crunch'
synchronised lending contraction across the banking sector would risk
amplifying the economic downturn (Figure D). Therefore ultimately it is in banks' own
interest to maintain the flow of credit and contribute to the long-term stability of the banking
system by preventing large scale borrower defaults and disorderly corrections in asset
markets.
Figure D: The New Zealand financial system
$bn $bn
700 700
600 600
500 500
400 400
300 300
200 200
100 100
0 0
Banking Stock Debt market Insurance Assets of Non-bank
system assets exchange capitalisation sector assets managed sector assets
capitalisation funds
In the year-to-date, aggregate credit volumes have remained steady and have not shown
-
any material month-to-month contractions or growth (other than consumer lending mainly
because the lockdown forced households to put away their credit cards!) (Figure E).
businesses'
However, banks have reported a material decline in demand for credit over the
first half of 2020 (Figure F). While demand for loans for working capital from small to
medium businesses (SMEs), corporates and sheep and beef farmers has increased,
investment
demand for credit for capital expenditure has fallen significantly. Businesses'
intentions have also fallen sharply, with increased uncertainty around the strength of future
demand. Some apparent weakening of demand for credit may also reflect perceptions by
businesses that credit would not be available or that terms have tightened.
Figure E: Annual credit growth (by sector)
% %
30 30
Housing Consumer Business Agriculture
25 25
20 20
15 15
10 10
5 5
0 0
-5 -5
-10 -10
-15 -15
Source: Reserve Bank Balance Sheet survey.
Figure F: Credit demand (observed change over past 6 months)
% Mar-18 Sep-18 Mar-19 %
40 40
Sep-19 Mar-20 Jun-20
30 30
More demand
for credit
20 20
10 10
0 0
-10 -10
-20 -20
Less demand
-30 -30
for credit
-40 -40
Residential Consumer Commercial SME Corporate Agricultural Dairy loans
mortgage loans property business loans loans
loans loans loans
Source: Reserve Bank Credit Conditions survey.
Indeed, banks have begun tightening several lending standards, particularly around
serviceability assessments and interest rate margins (Figure G). Much of the tightening that
has occurred to-date has been limited to more risky sectors. For some (such as commercial
property, SMEs and dairy) this represents a continuation of trends that preceded COVID-19.
However, banks have begun to apply more conservative standards to particular sectors
exposed to the COVID-19 shock such as tourism, retail, accommodation, and construction.
While some tightening is understandable and will reflect the general deterioration in the
quality of applications, banks should not become overly cautious and should continue to
focus on the long-term prospects of the applicants.
Figure G: Lending standards (change over past 6 months)
Collateral requirements Serviceability requirements
% %
70 70
Repayment terms Covenants
Interest markup Other factors
60 60
Tighter
50 50
40 40
30 30
20 20
10 10
0 0
-10 -10
Easier
-20 -20
-30 -30
Residential Commercial SME business Corporate Agricultural
mortgage property lending lending lending lending
lending
Emerging risks and structural changes
and its corollary, risk management, is not "once and dusted". It is a dynamic
Resilience
process, one that must be continually tested, prepared for and built in the face of unexpected
scenarios, and new and emerging risks. Today, new risks are emerging as industry
structures, technology and environmental factors evolve. The pandemic is a reminder that
periodic crises are a fact of life, but that the timing and nature of future crises are notoriously
difficult to predict. Amongst the many significant challenges facing the financial system over
the next decade are cyber risk, FinTech, climate risk, financial inclusion and the changing
landscape for digital currencies and payments. These threats, and others, that may emerge
point to the importance of strengthening the resilience of the financial system.
Banks should continually strive to innovate in response to competition, changing customer
expectations, technological innovations, and the drive for efficiency. Change is nothing new.
Banking in New Zealand has continuously evolved over the past 180 years; from small
banks serving local communities when mobility was by horse and cart, to extensive
nationwide branch networks where thousands of transactions are processed every second.
Over the past 30 years, technological advances have accelerated the use of electronic
payments at the expense of physical branches, cheques and notes and coins (Figure H).
While bank branch numbers have been falling for a decade, there has been an increased
focus on engaging with customers digitally, and the COVID-19 lockdown would appear to be
accelerating this trend.
Figure H: Number of New Zealand bank branches & ATMs
90 90
ATMs per 100,000 people
Bank branches per 100,000 people
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
2004 2006 2008 2010 2012 2014 2016 2018
Source: World Bank Global Findex Database (2017).
The Reserve Bank wants to see an innovative, dynamic and customer-focused financial
sector. With the digitisation of financial services, the financial system enjoys more
opportunities to drive up productivity and these innovations serve the majority of customers
well. New Zealanders are enthusiastic adopters and have embraced the opportunities
presented by technology (Figure I) However, any reduction in the availability of cash and
branch closures will impact certain pockets of society more than others. It is important that
financial institutions maintain a strong focus on financial inclusion, finding ways to service
and support those less able to access the electronic channels. Regional banking hubs
currently being trialled are one way to provide banking services in small rural communities.
Figure I: Measures of financial inclusion
Used mobile phone to access
account
Credit card
New Zealand
OECD
Debit card
Made or received digital
payment
Paid bill online
Deposit account
%
0 25 50 75 100
Source: World Bank Global Findex Database (2017).
This drive towards digitisation could lead banks to aggressively pursue low-cost business
-
models a utility-type approach to banking. Or, banks could use their digital strategies to
support increasing customisation, differentiated and customer-specific service offerings.
Perhaps there will be a mix, with different service strategies for different customer groups or
product lines. Corporate and business lending, by its very nature, is likely to require more
relational banking activities, while mortgage lending has both commodity (utility) and
relationship dimensions, and deposit taking can also reflect customer-loyalty. There are
many niches in the financial sector, and different providers (including non-bank financial
institutions) will seek to compete on the basis of their perceived business model advantages;
however, increasing digitisation appears common to them all.
As banks determine new business models, increased internal investment will be needed in
technology, customer management and risk management. Managing customer, investor and
regulator expectations in the face of persistent structural changes and an evolving risk
environment will require strong organisational leadership and governance.
Cyber Risk
The flip side of digital strategies is that the financial system has increased exposure to cyber
risk due to ever-evolving cyber threats. Cyber risk imposes costs, not only for financial
institutions, but also for their customers and the financial system as a whole. We estimate
the average cost of a cyber-incident to be around $104m for the banking sector and $38m
for the insurance industry. To put this in perspective, it is the equivalent of 2-3 percent of
annual profits for the banking and insurance sectors. This may not seem significant at first
glance, but cyber risk is a typical tail risk. We estimate that there is a 5 percent chance in
any given year that the cost of a cyber-incident could exceed $2b, which is equivalent to
banking industry's annual
one-third of the profit. These costs include both direct costs from
financial loss and indirect costs such as reputational damage and the opportunity cost from
foregoing more productive investment.
Therefore, there is a great deal of common interest between the Reserve Bank and industry
to promote cyber resilience. As a first step, we have developed guidance on cyber resilience
for all our regulated entities. Consultation for guidance was initially planned for March but will
now be released for public consultation in October. The Reserve Bank is also working
closely with other relevant government agencies such as the GCSB, CERT NZ and the FMA
to promote information gathering and sharing regarding cyber resilience.
FinTech
The march of technological innovation is relentless, and disruptive technologies and
innovative financial service providers will challenge banks' business models at an
ever-
accelerating pace. 'FinTech' is the buzz term that encompasses a broad range of
technologies that enable households and businesses to manage their finances, and includes
open banking, real-time payments and digital currencies. New Zealand has a long tradition
of pioneering technology companies, and has a strong pipeline of promising FinTechs with
revenue exceeding $1.1bn.8 FinTech present both risks and opportunities for banks, and
broader monetary and financial stability, and cuts across a number of Reserve Bank
functions. This is not academic, it is happening now.
8
Technology Investment Network (2019) TIN Report: Technology Industry Analysis (Report No. 15).
'Open banking' refers to a standardised framework for sharing bank customer data. Open
banking reduces barriers to entry and eliminates banks' monopoly over their customers'
data, making it easier for FinTech firms to innovate. The secure sharing of customer banking
data has the potential to promote financial system soundness. By increasing competition,
and unbundling banking services across a larger range of firms, it reduces the systemic
importance of large banks. Greater sharing of customer data may also create opportunities
for more personalised financial products and lower switching costs (which may promote
market discipline). Open banking also presents risks, including making the banking sector
more prone to cyber risk.
-
The reality is that open banking is here even if it appears slow to emerge for end-users.
The Reserve Bank is already fielding an increasing number of engagement requests from
FinTech organisations. Banks' business models and products must become more customer
centric or FinTechs will expand at the banking system's expense. The Reserve Bank
is not
guardian of the status quo. Whilst FinTech disrupters could weaken bank profitability and
create transitional risks, ultimately the Reserve Bank supports a dynamic financial system
focused on improving outcomes for customers and financial system participants.
Commercial banks start with the advantage of established customer relationships and a
prevalence of accumulated data. Whether banks embrace the opportunity of open data, or
resist innovation and are competed away by emerging FinTechs is up to them.
The Reserve Bank's
Statement of Intent sets out our commitment to ensure the regulatory
system facilitates financial sector innovation that benefits New Zealand. We recognise that
there is more we can do, and will look to play a more active role to better understand the
risks associated with FinTech developments, enable innovation in the financial services
sector, and help harness opportunities for increasing financial inclusion and financial literacy.
We believe the current regulatory system is sufficiently flexible to allow innovative
approaches to flourish, but we will continue to work closely with our stakeholders to identify
and remove any unnecessary barriers to new firms entering the system or obstructions for
incumbent firms developing FinTech solutions. That said, the Reserve Bank has little
appetite to lower regulatory standards for deposit-taking FinTechs alone. Minimum
standards need to be applied to avoid risks to financial stability and the reputation of New
Zealand's financial system. Our guiding philosophy is: "same business, same risks, same
rules".
Criticality of payment systems
Payment and settlement systems (often referred to as financial market infrastructures or
FMIs) play a key role in the operation of the financial system by providing the essential
services needed to clear payments and financial market transactions. Payment systems can
vary from the EFTPOS system, which transacts millions of small retail payments between
consumers and businesses every day, through to interbank settlement systems, like ESAS,
operated by the Reserve Bank, which handles, on average, $30b worth of transactions each
day.
-
FMIs are one of those critical infrastructures like telecommunications networks, electricity
-
grids and water pipes which operate in the background and allow for our modern way of
life. Nobody realises how well they work, until they don't! The danger is
that nobody invests
in their renewal until it is too late. The banking system has a crucial role to play in supporting
sector-wide infrastructural investment, as well as at the individual institution level to interface
with FMIs. Rationing investment in this area is destined to escalate risks and challenges for
the banking system.
Many FMIs are systemically important due to the role they play in the financial system and
their high degree of interconnectedness with the rest of the system. Disruption or failure of
any one of these infrastructures could affect the financial system as a whole, and create
major solvency and liquidity problems for market participants, as well as disruption for
consumers and businesses, making it difficult or impossible to buy or sell goods and
services. These systems can also act as the mechanism for transmitting contagion from the
failure of a systemically important financial institution, such as a large bank.
The new Financial Market Infrastructures (FMI) Bill will establish an enhanced regulatory
regime for the supervision of FMIs by the existing regulator, being the Reserve Bank for
payments systems and Financial Markets Authority jointly for settlement systems. The Act
will provide the Bank and the FMA with broad information gathering powers, the ability to
designate systems as being systemically important, and have enhanced oversight and
enforcement powers.
Finally, one long-term, almost existential issue for the banking system arises from the
declining use of cash and the potential for digital currency to be issued by the central bank.
While the Reserve Bank has no immediate plans to issue its own digital currency, it is an
area of continuing innovation and exploration around the world, and one that we are
beginning to consider its relevance for New Zealand. For now, the Reserve Bank is
reviewing how best to support, steward, and facilitate access to physical cash and we will
continue to engage with the banking sector in order to effectively meet customer demands.
-
For example, we have recently created a new department the Money and Cash
-
Department to think broadly about a future that serves the money and cash needs of New
Zealanders. This includes smarter ways of cash distribution, as well as innovative solutions
to emerging risks noted above.
Financial Inclusion and Te Ao Māori
increasingly important part of the Reserve Bank's policy
Financial inclusion has become an
agenda in our capacity as a Council of Financial Regulator member and our own Te Ao
Māori strategy. The Strategy helps to guide the bank in understanding the unique prospects
of the Māori economy, how Māori businesses
operate, and what lessons the Bank may learn
in setting systemically-important policy with this view in mind. An important part of the
Strategy is making clearer the unintended consequences of our policies on unique
Māori economy.
economies like the
The COVID-19 pandemic has demonstrated the disproportionate impact of such economic
downturns on both Māori and Pasifika communities. These compounding economic impacts
have necessitated the Reserve Bank proactively reaching out to its re