in search of gold : exploring central bank issued digital currency a speech delivered to the point conference in auckland on 26 june 2018 by geoff bascand, deputy governor introduction kia ora and thank you to payments new zealand for the invitation to speak. payments systems are highly interconnected by nature, so it is fitting that we are all here connecting with each other — learning, listening and discussing the hot topics in payments. 1 the payments system is an integral part of our financial system. it is also one that is evolving at considerable pace. we have already heard this morning about changing consumer demands and advances in financial technologies. retail payments have become faster, and much easier to access. we can now initiate payments in a variety of ways – we can simply tap our credit cards, hold up our mobile phones, or pay for things remotely using a mobile banking app. sellers at farmers ’ markets can now receive card payments by plugging a small device into their mobile phones, and charities can now collect donations on the street using q - code technology. all of these developments have made transactions more convenient, faster, and accessible for consumers and merchants. but they have mostly been concentrated at the front - end of the payments process. crypto - currencies, and the blockchain technology they rely on, are bringing about more farreaching changes in the payments system and the way we view money. blockchain technology is unique because there is no central agent managing the system, and there is no separation between sending the payment instruction and the final settlement of funds. it ’ s a different type of payment system and could bring new opportunities to payments and currency. this period of change can be compared to an earlier time when exploration was fast - paced and the stakes were high — the 1860s, when the gold rush hit new zealand. during this period, miners came from all over the world to find gold in our valleys and rivers. gold, a form of money ( in respect, then, of its payment and store of value properties ), could be found by anyone with a bit of luck, determination and hard work. the early 1860s gold rush is not unlike the search for wealth that has fuelled the speculation in privately issued crypto - currencies. but beyond the speculation surrounding bitcoin prices, and the debate regarding whether it is a currency, an asset or a bubble, there lies a fundamental question — should central banks enter this terrain, and issue digital currencies of their own to the

) or reduced availability of funding. secondly, and relatedly, a central bank digital currency could reduce commercial bank resiliency to economic downturns. this is because commercial banks might have to compete for deposits by offering higher interest rates, which could lower their profitability. further, commercial banks ’ payment fee revenues could be diminished if a central bank digital currency offered cheaper domestic and cross - border transaction fees. lower bank profitability due to competition might imply that bank activities are being conducted more efficiently ( assuming the central bank services were priced appropriately ). but there could be adverse consequences for financial stability if less profitable banks become less resilient to shocks, or if they look to replace lost profitability by searching for higher yielding ( more risky ) assets. we need to be careful not to exaggerate these concerns, however, as commercial banks are already facing increased competition in the deposit and payments aspects of their business from non - banks such as paypal and transferwise. this increased competition has not adversely affected bank resiliency to date. further, us and canadian history, where commercial bank banknotes co - circulated with government - issued banknotes, suggests commercial bank money can, to some extent, compete with central bank money. 14 thirdly, and more troubling, the presence of a low - risk digital currency could increase the probability and severity of bank runs during periods of system - wide instability — depositors could easily, and remotely, transfer large deposit holdings to a central bank digital currency during any wide - spread period of perceived financial instability. other miners in the gold rush the reserve bank is not the only participant in the exploration of digital currencies. there are many providers of conventional digital currencies and crypto - currencies. these private currency and dlt providers put competitive pressure on incumbent financial institutions. competition is good for innovation and efficiencies and could be the most enduring benefit of 14 this co - circulation persisted until legislation granted central banks ’ the sole right to issue notes was introduced fung, hendry, weber ( 2017 ), weber the global exploration of new financial technologies. we encourage innovations that improve banking and payments services, provided they do not generate systemic risks. beyond the payments systems, the reserve bank is also responsible for the prudential regulation of banks, non - bank deposit takers and insurers. private crypto - currencies currently have limited implications for prudentially supervised entities. entities subject to reserve bank