Accelerate banking innovation, but not with digital currency

Commerce and consumer affairs minister Kris Faafoi has urged the payment sector to accelerate innovation and the move to open banking.

Commerce and consumer affairs minister Kris Faafoi has urged the payment sector to accelerate innovation and the move to open banking.

Speaking at the Payments NZ Conference, Faafoi said: “Speed is of the essence and the status quo isn’t an option. I do not want to see New Zealand left behind in respect of the outcomes that open banking could deliver in terms of economic development and benefits for consumers.”

He said the principles set out in the Australian review into open banking would make a good starting point: customer-focused, promoting competition, encouraging innovation, efficient and fair.

And he flagged a possibly greater role for government in driving innovation saying: “So far, government has mostly stood on the sidelines as an enthusiastic supporter of payment systems innovation.

“In the future, we will be testing whether there is more of a role for government in facilitating some form of open banking. … I know that there are more than enough creative minds in this room to successfully ‘open up’ payments and banking more generally. But you still need to convince me that you are willing and responsive enough to take a leap and embrace a new environment.”

He said the industry had “a clear opportunity to deliver real, positive outcomes for consumers, businesses, and the financial sector itself through implementing a set of standardised APIs.”

However, one financial innovation that will not appear in New Zealand any time soon is an official digital currency.

In a speech to the same conference Reserve Bank deputy governor Geoff Bascand said the bank had explored issuing a digital currency and the bank’s position was “not now”.

Bascand said a digital currency would be easier and faster to distribute around the country than banknotes because it would not require physical transport but there would be new infrastructure costs if a central bank digital currency were introduced.

“The pros and cons very much depend on how the digital currency is designed,” Bascand said. “Digital currencies with central control can improve efficiency but potentially at the expense of reduced resilience. At this time, a blockchain-type of official digital currency would reduce the efficiency of the payments system.”

He added: “One of the most important contributions a central bank makes to prosperity is supporting financial stability. We couldn’t issue a digital currency if it might undermine financial stability, and there are considerable risks on this front.”

 

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