With fewer Kiwis wanting to use cash and infrastructure like ATMs and banks drying up, the Reserve Bank is trying to figure out how the future of money will work.
The COVID-19 pandemic has accelerated the trend to digital, with a recent survey by the central bank finding half of Kiwis had cut down on their use of cash in 2020, most citing the pandemic. Twelve percent of Kiwis reported cash as their preferred payment method in 2019, dropping to 9 percent in 2020.
"What we're seeing is most people are using electronic methods of payment, and that is speeding up - and it has sped up post-COVID," Reserve Bank Assistant Governor Christian Hawkesby told The AM Show on Thursday.
"But what we're also getting a message around is people still like to have the ability to use cash."
Access to cash is fast disappearing though. Hawkesby said a quarter of all bank branches have closed in the past two years, and half of those still left are running reduced hours and staffing.
"I think cash is a challenge for the banking system, and it's partly because it is a big piece of infrastructure - running the cash system costs money, you need branches, you need ATMs, you need security vans travelling around the country," said Hawkesby.
"As people use less physical cash it becomes more costly to keep that infrastructure going - you can see the way that banks have been closing branches, closing ATM machines. That sort of reflects those changes."
A much cheaper alternative could be a digital-only currency that doesn't have a real-world physical version. Many central banks around the world are looking into setting up what's known as a Central Bank Digital Currency (CBDC), though what form they might take remains to be seen.
According to Investopedia, CBDCs have been inspired by the rise of cryptocurrencies like Bitcoin. Existing cryptocurrencies are unregulated, their values fluctuate wildly and they've become closely associated with the black market - making them largely unsuitable as official currencies.
CBDCs would "act as a digital representation of a country’s fiat currency, and will be backed by a suitable amount of monetary reserves like gold or foreign currency reserves".
"Each CBDC unit will act as a secure digital instrument equivalent to a paper bill and can be used as a mode of payment, a store of value, and an official unit of account.
"Like a paper-based currency note that carries a unique serial number, each CBDC unit will also be distinguishable to prevent imitation," wrote Investopedia's Shobhit Seth.
"Since it will be a part of the money supply controlled by the central bank, it will work alongside other forms of regulated money, like coins, bills, notes, and bonds."
China is leading the way with its digital renminbi, which allows people to make cashless transactions even when their devices are offline, and eventually perhaps without even having a bank account.
Hawkesby said 80 countries are looking into CBDCs, and how they could ease the transition away from physical cash.
"What would a society look like that didn't have physical cash, or where there was an alternative where you could have physical cash or digital currency from the Reserve Bank?"
More on the Reserve Bank's 'Future of Cash' series can be found on its website.