This is not only about interest margins, but also about pensions, savings plans, and fundamentally distorted incentives in the financial system. This now brings us to the second and – for some credit institutions – more uncomfortable part. As I have mentioned, hope alone is not only not enough for banks and savings banks – hope may also be the wrong approach entirely.
This competition could result in three substantial risks to financial stability. Firstly, if a large number of deposits were held in the digital currency rather than commercial bank accounts, then New Zealand banks might become more reliant on overseas wholesale funding. This would, accentuate our banking system’s susceptibility to downturns in overseas markets.