Comparing between NZDD and central bank digital currencies

14 November 2023

NZDD is our take on New Zealand’s modern stablecoin. It is aimed to break down the barriers to digital finance for everyone. As a highly adaptable technology, NZDD is the right fit for businesses that rely on an efficient, scalable, secure, and borderless round-the-clock payment network.

As with any innovation, it’s important to define what it is, and what it is not. With proper definitions and classifications anyonecan fully understand the benefits and risks, and have the right expectations for what the technology can do for them.

New to stablecoins? Here is our short introduction to stablecoins and what their benefits are.

NZDD benefits for individuals and businesses

NZDD combines the best of two worlds — the speed and security of blockchain, and the value and stability of the NZ dollar. 

You may know blockchain as the technology behind Bitcoin. Since its creation in 2009, blockchain technology has evolved into a diverse range of highly optimised models that constantly improve with time. The Ethereum blockchain, on top of which NZDD is built, provides a way to swiftly transfer tokens to any part of the world, but with significantly less carbon footprint than major banking networks in existence today.

Of course, you may prefer to transfer value denominated in NZ dollars. Sending Bitcoin and cryptocurrencies may sound like an interesting idea, but at the end of the day, the dollar is what pays the bills and puts food on the table. 

NZDD is the crypto that you can use to meet your daily needs. The stablecoin is highly integrated into the modern Kiwi financial system, through our partnership with crypto-backed credit card companies.

NZDD transfers will also take the same amount of time, and cost the same in transfer fees, regardless of where you are in the world. How many NZDD tokens you transfer will not influence the transfer fee. Of course, this is an excellent alternative for those wanting to send hard-earned money back home, whose family happens to live in remote places. Businesses that hire employees remotely can definitely benefit from this as well.

This is what we mean by NZDD being “borderless”. Blockchain transactions don’t see distance and amount of transfer as limiting factors. 

NZDD is not a Central Bank Digital Currency

The important point to remember is that NZDD is not a central bank digital currency (CBDC), as it is not issued by the Reserve Bank. However, NZDD happens to share the same value propositions of most CBDCs in the world. Both NZDD and CBDCs like China’s digital yuan, Nigeria’s e-naira, and Sweden’s e-krona, are all aimed to create a seamless and reliable payment network across each nation. 

The benefits of a CBDC are numerous. Central bank issued digital currencies connect each citizen in one giant payment network, regardless of whether they have a private bank account or not. CBDCs are the digital embodiment of the bank note. However, unlike a bank note, a nationwide digital currency is far superior in terms of security, accessibility, and convenience. 

CBDC can also significantly lower the corruption rate and money laundering as transactions are traceable directly by the central bank. The same cannot be said for bank notes, which are physically more difficult to trace.

At Easy Crypto we are super excited at the prospect of Aotearoa having a modern digital currency and keeping up with the global trend towards a secure and transparent financial world.

NZDD vs Central Bank Digital Currency – the differences

The Technology

Although NZDD is privately issued by the same team behind Easy Crypto, it is built to be used by everyone, anywhere. It’s not only New Zealand residents who can benefit from its use. NZDD is able to travel the world, move across different digital wallets, and is completely traceable.

For those interested in the technical side of NZDD, the stablecoin is minted as an ERC-20 token on the Ethereum blockchain. It will soon be minted on other chains as well, such as Polygon, Avalanche, and other EVM-compatible networks. Like all blockchain tokens, NZDD can be sent from one person to another directly.

Conversely, many CBDCs are still evaluating the use of public blockchains. Ukraine’s experimental e-hryvnia uses the data storage infrastructure of the Stellar blockchain network. Of note, the majority of CBDCs in existence don’t use blockchain technology as it is still quite an unfamiliar territory for many government bodies.

Monetary Policy

Central banks wield the power to expand or contract a country’s money supply through various actions — controlling the cost of credit through the interest rate, buying government securities to inject new money, changing the bank reserve requirements, etc. In simple terms, central banks have the legitimacy to create new money, regardless of its form.  

NZDD is a digital representative of the New Zealand Dollar (in other words, a “tokenized NZD”). Of course, we adhere to a very strict rule when issuing or removing NZDD. The rule is simple — to issue one NZDD token, $1 must be locked securely inside a local NZ bank account. This liquid cash dollar must be ready at all times to be redeemed when someone decides to switch back from NZDD to NZD.

The important point to remember is that minting NZDD does not create new NZ dollars. It only changes its form — from cash into stablecoin.

Integration with Web3 and crypto

NZDD has a stronger relationship with the crypto space than any CBDC could. This is because NZDD is a crypto token itself, and is therefore tradeable with many other crypto on decentralised exchanges.

CBDCs, on the other hand, employ very different infrastructures. Even if some aspects of it uses blockchain technology, CBDCs cannot become completely permissionless like crypto tokens. This is because governments may want finer control over their sovereign assets (it’s a national currency, after all) and may not be ready to completely expose them to the open Internet, for national security reasons.

As we mentioned, NZDD is quite useful for everyday transactions using crypto-backed credit cards. However, it is also equally useful for those who are really into crypto. If you are a New Zealander, holding onto a stablecoin that carries the value of the NZ dollar is much more preferred than holding onto stables like USDT, USDC, or DAI — these carry US dollar values, and are subject to volatility.

So, if you are investing regularly into crypto, consider using NZDD to hedge against crypto volatility. When you profit from selling crypto, consider storing that profit in NZDD tokens. 

Key takeaways

NZDD is not a central bank digital currency, because it is privately issued. We also adhere to a strict rule where minting NZDD must involve locking NZ dollars safely in liquid form. NZDD and CBDCs are both useful in their own unique ways. While CBDCs will push towards the digitization of finance, NZDD offers so much more — scalable and borderless transfers, and deep integration with the crypto space.

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