The world is undergoing a fundamental change to how money works, and New Zealand should choose its response wisely, an Otago researcher cautions.
New University of Otago – Ōtākou Whakaihu Waka research co-authored by Dr Murat Ungor from the Department of Economics, and his former Masters student Jack Buchan, has been published in the International Journal of Political Economy.
It examines threats to monetary sovereignty in the digital era of blockchain-based digital currencies and declining physical cash usage, recommending a path forward for policymakers currently considering the best options for monetary stability.
Dr Murat Ungor
Dr Ungor argues that in order for New Zealand to maintain monetary sovereignty, it should design a central bank digital currency (CBDC), using a model that offers the best protection for consumers while balancing financial stability and innovation.
"Money is power," Dr Ungor says.
"The question is whether that power will rest with democratic governments accountable to their citizens, with large technology companies accountable to their shareholders, or with foreign governments pursuing their own strategic interests.
"For the first time in history, private companies and foreign governments can offer digital currencies that compete directly with our national currency."
Threats to a nation's monetary sovereignty – which enable the Reserve Bank and government policies together to manage inflation, financial stability, and crisis responses – come from multiple directions, he says.
Cryptocurrencies like Bitcoin operate outside government control, and private companies are issuing stablecoins which are digital tokens pegged to major currencies like the US dollar.
The Trump administration's 2025 executive order, followed by the subsequent enactment of the GENIUS Act favouring private stablecoin networks over a government-issued CBDC, has fundamentally altered the competitive landscape, he says.
"Such a move legitimises private US-dollar-backed stablecoins as a major digital payment infrastructure.
"That could weaken the Reserve Bank of New Zealand's ability to transmit monetary policy and maintain currency sovereignty if consumers and businesses here adopted them at scale."
More than 130 countries and currency unions, representing 98 per cent of global Gross Domestic Product, are now exploring or actively developing CBDCs, and the Reserve Bank is investigating whether or not to bring in a digital currency by about 2030.
While most people already pay via apps or cards, that money is currently managed by private commercial banks.
A CBDC would be a digital version of physical banknotes in people's wallets, but backed directly by the Reserve Bank.
"Right now, when you check your bank balance, you are looking at a promise from your bank to pay you," Dr Ungor says.
"With a CBDC, that money would be a direct claim on the Reserve Bank itself, the safest form of money possible."
However, getting the CBDC design choice right is crucial in order to maintain consumer privacy and protection from increased financial surveillance, he says.
"The research strongly favours an indirect model where you would still interact with your commercial bank or payment app, but the underlying money would be backed one-for-one by the Reserve Bank.
"Banks would handle customer service, innovation, and privacy protections, whilst the Reserve Bank ensures the money itself is safe and stable."
This preserves privacy, maintains financial stability, and leverages private sector innovation, he says.
The study recommends the Reserve Bank implements a dual CBDC system with both wholesale (for banks) and retail (for consumers) versions.
"Wholesale CBDCs modernise behind-the-scenes payment infrastructure. Retail CBDCs give people access to safe digital public money.
"Safeguards like holding limits, tiered interest rates, and restrictions on functionality would help prevent bank runs during crises whilst still offering genuine utility."
In the absence of a CBDC, people may become increasingly dependent on private payment platforms or foreign digital currencies and this could mean that large technology firms or overseas institutions, not NZ's public institutions, set the rules for how people pay, save, and transfer money.
"Then you would notice in a crisis that your digital money stopped working, that your bank could not help you, that prices were volatile in ways no one seemed able to control, and that there was no government or central bank you could hold accountable.
"A CBDC is not about changing how you buy coffee. It is about making sure that when you do buy coffee, the money in your phone still means something tomorrow, next year, and during the next economic downturn."
Publication:
Monetary sovereignty in the digital age: the role of Central bank digital currencies
Jack Buchan, Murat Ungor
International Journal of Political Economy
DOI: 10.1080/08911916.2026.2624900
