An intriguing experiment with digital currency is set to begin
Our Reserve Bank has thus far shown lukewarm interest in creating a digital currency for the country tied to the New Zealand dollar. But that isn't stopping innovation and experimentation with what a digital currency could look like.
One such effort will launch early next year in the form of a technology platform that will let businesses pay each other for goods and services, with the transactions taking place using digital currency and underpinned by blockchain-based distributed ledger technology.
PowerFinance, the Auckland fintech start-up behind the scheme, plans to start with a small number of large companies that make large transactions between them, chief executive Dave Corbett, told Interest.co.nz.
He describes the "PowerDollar" as 'smart money'.
"Unlike today's traditional New Zealand currency, the built-in technology and compliance knows who is holding it, where it has been, where it is going and what contracts and regulations apply to its use, which helps prevent money laundering and fraud."
So far, so familiar. But the PowerDollar is also pegged to the value of the New Zealand dollar and is backed by real NZ dollars that are held as part of the IRD's tax pooling system as prepaid tax. This is money belonging to private companies and held by the government rather than being directly underpinned by our central bank as an official digital currency.
It is a rather novel approach and has led PowerFinance to lay claim to a world-first "sovereign backed digital currency". Still, the Inland Revenue Department was eager to point out this week that it hasn't partnered with PowerFinance and that they didn't consider the digital currency to be 'sovereign-backed'.
Dollar for dollar
PowerFinance, which plans to apply for a banking licence with the Reserve Bank, touts all the expected benefits of a blockchain-based currency system when it comes to verifying identity, recording transactions and employing smart contracts.
But in real terms, those "Power Dollars" will also be used by companies to transact with customers. Payments for goods and services will be made and finance offered, with loans also repaid via the platform. Everything will happen in Power Dollars.
"Our purpose is enabling local businesses to offer financial services with lower costs, greater transparency and the ability to enhance both customer experience and revenue," says Corbett.
PowerFinance is backed by British financial venture capital company Centrality Ventures as well as local investors.
Meanwhile, China is forging ahead with its digital version of the yuan, which is indeed an official central bank digital currency.
China's central bank claims that 1.1 billion yuan (US$162 million) worth of digital currency has been processed in pilot transactions that cover everything from bill payments, transport and government services.
The pilot had seen 113,300 personal digital wallets and about 8,800 corporate digital wallets opened. For years, China has led in digital payment technologies and sees digital currency as a way to streamline its massive financial system while stamping down on corruption and tax evasion.
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