The Reserve Bank has toyed with the idea of offering a digital currency to the public through prepaid cards.
Geoff Bascand, the bank's deputy governor and head of financial stability, said in a speech to an Auckland conference that the bank had explored whether issuing a digital currency could better meet the needs of the public.
"Issuing a central bank digital currency would ensure public access to legal tender money regardless of the presence of cash," Bascand said in his speech.
"A digital currency is easier and faster to distribute around the country than banknotes because it doesn't need to be transported, but there would be new infrastructure costs if a central bank digital currency were introduced," Bascand said.
"We're also interested in whether a central bank digital currency could bring improvements to the payments system," he said.
Digital currencies with central control can improve efficiency but potentially at the expense of reduced resilience, he said.
But he said at this time, a blockchain-type of official digital currency would reduce the efficiency of the payments system.
From a financial stability perspective, the bank would not issue a digital currency if could undermine financial stability, "and there are considerable risks on this front".
"The payments industry is dynamic and the Reserve Bank is searching for ways to harness new technologies and do things better," he said.
"Currently, it is still too early to determine whether a digital currency should be issued," Bascand said.
The popularity of Bitcoin, and blockchain technology that underpins it, has exercised the minds of central bankers all around the world since it burst onto the scene in 2009.
The Bank of International Settlements (BIS), in a report out this month, said central banks were closely monitoring the blockchain technologies while taking a cautious approach to implementation.
"Some are evaluating the pros and cons of issuing narrowly targeted CBDCs (central bank digital currencies), restricted to wholesale transactions among financial institutions," BIS said.
These would not challenge the current two-tier system, but would instead be intended to enhance the operational efficiency of existing arrangements.
"So far, however, experiments with such wholesale CBDCs have not produced a strong case for immediate issuance," BIS said.
The Reserve Bank of New Zealand already issues a digital currency to commercial banks, through their accounts with the central bank.
"But we could also offer digital currency to the public via accounts, prepaid cards, or some other mechanism," Bascand said in his speech.
A digital currency could be a crypto-currency and use distributed ledger technology or it could be a conventional digital currency and based on existing payment technology.
A conventional currency could involve members of the public holding bank accounts at the Reserve Bank Or it could involve members of the public holding currency on cards or other tokens, similar to prepaid cards. Bascand said.
This digital currency would co-circulate with banknotes and coins.
Despite the popularity eftpos and online banking, Bascand demand for cash continues to grow as a share of the economy, and currently sits at 2.7 percent of GDP.
Crypto-currencies the blockchain technology they rely on, are bringing about more far-reaching changes in the payments system and the people view money, he said.
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.
A separate survey out today from accounting software company MYOB of 400 New Zealand small-to-medium sized businesses found that 36 per cent of respondents predicted the local economy will be cashless within 10 years, while a further 42 per cent think it would take two decades.
The research also showed the most popular payment methods are now bank transfers (71 per cent), online payments (64 per cent), credit cards (40 per cent), and Eftpos (39 per cent). Only half of New Zealand businesses use cash and 12 per cent have shifted to mobile payments, the survey said.