New Zealand deputy governor Grant Spencer says New Zealand's central bank, the Reserve Bank of New Zealand, is not threatened by Bitcoin, but is eventually planning to tighten regulation.
"As the currency issuer, the Reserve Bank does not feel threatened by Bitcoin which seems to behave more like a commodity than a currency."
"However," continued Spencer, "I do not doubt that future digital currencies will become more realistic substitutes for cash."
30 years ago, payments were made using cash and checks. Today, we are witnessing the emergence of contactless payment systems, mobile phone based applications and online payments with a large number of new players entering the payment market including Apple, Google and Paypal, said Spencer. He also added:
"This greater use of technology is making our lives easier but also brings increased operational risk."
These concerns, said the deputy governor, include the vulnerability of payment systems to cyber-attacks, and risks associated with the involvement of new non-traditional players. As an example, Spencer cited the case of JP Morgan's August cyber-attack, where 76 million household files were compromised. This kind of incidents highlights "the reliance that we now have on technology and what can happen when that technology fails," said Spencer.
The deputy governor said that in order to respond to the increased risks associated with payment systems, providers of payments services needed to "closely manage the new operational risks arising from the increasing reliance on complex technologies and the Internet."
Further, Spencer said there are 4 core objectives that "financial market infrastructures (FMIs) are encouraged to follow as responsible 'NZ Inc. payments citizens.'" These objectives consist in:
- Good governance: FMIs should be managed by appropriately skilled people, and views of relevant stakeholders should be taken under consideration;
- A sounds risk management framework, covering legal, credit, liquidity, operational and other risks;
- Continuity of service: payment systems should be able to cope with potential disruptions;
- Fair and open access: FMIs should have risk-based and publicly disclosed criteria for participation.
While many countries had tightened their regimes, the Reserve Bank of New Zealand's current regulatory approach has been "low-key," said the deputy governor. He added:
"In the international context, the Reserve Bank's regulatory framework in the payments area is at the non-intrusive end of the spectrum."
The deputy governor said the Reserve Bank of New Zealand was looking to "strengthen its oversight regime in order to fully apply the principles to systemic FMIs," and added:
"The Reserve Bank's approach to payment system oversight is not to be prescriptive in terms of future payments system architecture. Nor does the Bank want to force cooperative 'utility' solutions on the industry which could inhibit innovation and competition."
Finally, he concluded with the prominent role of the industry's high level governance structure, Payments New Zealand, in "facilitating competition and innovation by allowing access to new participants, and giving all participants an input into the strategic direction of the industry."
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