New Zealand could be using a government-backed digital currency by the end of the decade.
The Reserve Bank (RBNZ) has opened a round of public consultation on the move towards a digital dollar, which would circulate alongside physical notes and coins.
Director of money and cash Ian Woolford said it offered the public another means of buying goods and services, but would bring efficiency, innovation and competition to the financial system.
"It would be the first digital form of New Zealand currency backed by the government and available to the public. Physical cash in banknotes and coins would still be available, so people would have the option to use either digital or physical cash.
"You would likely need a digital wallet, payment card or phone app to access your digital cash. You wouldn't need a commercial bank account to use it."
Woolford said the financial sector was changing and challenging the country's monetary system with the development of cryptoassets, digital currencies from global companies, smart contracts and distributed ledgers.
"New Zealand's money must innovate to stay relevant and useful and ensure our monetary sovereignty."
He said digital cash would be mainly used for payments by individuals and businesses, to pay online or instore. It could even be used for children's pocket money in the same way as cash was currently used.
"You could use it to do new things like make an instant digital payment to anyone in New Zealand. Today, New Zealanders still cannot make instant payments electronically to other people, unless they are both with the same bank."
But work on the design, security issues, technology, the currency's inter-operability with other forms of payment, and regulation were all matters for the future.
The discussion paper said care would have to be taken with the design and management of digital cash to ensure its security, public use and confidence.
It also noted the supply of such a currency might have significant impacts on banks.
"This demand for digital cash may come from deposits, physical cash or income growth.
"The Reserve Bank has not forecast how much digital cash people would want. But we can expect that if people want to use a lot of digital cash, then banks and other deposit takers will lose deposits. This could cause them to lose profits and liquidity. "
Woolford said the RBNZ was working in the background in assessing the implications of a digital currency on monetary policy and setting interest rates as well as broader financial stability.
But he reiterated that this was not a step towards doing away with physical cash.
"We are planning for a future in New Zealand that has less cash, but not one that is cash-less. We are committed to continuing to make cash available in forms that New Zealanders want to use."
Consultation on the paper is open until 26 July, and the discussion documents can be found [www.rbnz.govt.nz/digitalcash here].