By Murat Ungor & Olena Onishchenko*
Over recent years, a new form of digital money has begun to carve out an increasingly prominent role in New Zealand’s crypto and investment landscape.
This is the stablecoin: a digital token typically linked to a traditional currency such as the US dollar.
Unlike more volatile cryptocurrencies such as Bitcoin, stablecoins are generally used less for speculation and more as a way to move and hold value – hence their name. They’ve gradually become more popular for trading digital assets, making everyday business payments and sending money overseas.
For regulators, however, they have posed an interesting challenge.
While designed to behave like money, stablecoins are typically issued by private entities and operate within digital networks that do not fit neatly into existing financial rules.
In recent months, major jurisdictions have begun establishing formal rules for them. The United States passed its first federal stablecoin framework last year, while Europe is moving to bring stablecoins under dedicated crypto-asset regulations this year.
New Zealand, too, has recently taken a step towards greater certainty.
Rather than introducing a new regulatory framework, it has clarified where one stablecoin sits under existing financial law through a recent ruling by its Financial Markets Authority (FMA). The market-wide implications may nevertheless prove significant.
So, how did New Zealand arrive at this point, what exactly has the regulator decided and what does this mean for the average investor?
The rise and rise of stablecoins
Stablecoins are not entirely new to New Zealand.
For years, local crypto traders have used major US dollar-backed stablecoins such as Tether (USDT) and USD Coin (USDC) as a way to move funds through digital markets without the volatility associated with cryptocurrencies such as Bitcoin.
But their appeal extends well beyond crypto trading. Businesses increasingly use stablecoins to pay overseas suppliers and move funds across borders, while major payment providers have begun incorporating them into their networks.
By March 2026, Visa’s stablecoin settlement platform was processing transactions at an annualised rate of US$4.6 billion across more than 130 card programmes in over 50 countries.
The technology may be particularly relevant for countries such as New Zealand, where international transfers can take days and often carry significant fees, especially for small businesses and remittance payments. Stablecoins promise near-instant settlement at a fraction of the cost.
As stablecoins have grown in popularity internationally, New Zealand has gradually developed its own ecosystem.
The first New Zealand dollar-backed stablecoin launched in 2021, while newer products such as NZDD – a New Zealand dollar-denominated stablecoin issued by ECDD Holdings Limited – have sought to bring the technology into mainstream payments and remittances.
Their rise has mirrored a global trend. Stablecoins have become a major vehicle for cross-border crypto flows, which surged from under US$7 billion in 2017 to about US$600 billion by mid-2024.
What the FMA’s ruling means
Against this backdrop, the FMA quietly issued a designation notice earlier this year declaring that NZDD falls outside the definition of a financial product under the Financial Markets Conduct Act 2013.
It is the first formal indication of how New Zealand regulators view a stablecoin under existing financial law.
The FMA’s reasoning was relatively straightforward. Unlike shares, bonds or other investment products, NZDD is not designed to generate a return. The ruling found its purpose is to facilitate payments and transfers, rather than generate investment returns.
Because each NZDD token is backed one-to-one by New Zealand dollars held in trust at a local bank, the regulator concluded that treating it as a financial product would provide little additional protection for users.
The ruling does not mean all stablecoins will be treated the same way. It applies specifically to NZDD as it is currently structured, providing a first indication of how New Zealand regulators may view similar products in future.
Nor does it mean stablecoins are risk-free.
Holding a stablecoin is not the same as holding money in a bank account, and stablecoins are not covered by deposit guarantee schemes. If an issuer runs into financial or operational difficulties, users may have fewer protections than traditional bank customers.
The distinction is important because not all stablecoins are created equal. Some are backed by cash and other highly liquid assets, while others have relied on more complex mechanisms to maintain their value.
The collapse of prominent algorithmic stablecoin TerraUSD in 2022 demonstrated how quickly confidence can evaporate when those mechanisms fail, wiping tens of billions of dollars from the broader crypto ecosystem.
A clear signal to investors
For New Zealand’s traders and investors, the ruling importantly addresses a long-unanswered question: just exactly what they’re holding when they own NZDD.
The FMA’s answer is that NZDD should be viewed primarily as a payment tool rather than an investment product. Until now, New Zealand investors had no official guidance on where stablecoins sit in within financial laws.
Still, it should be viewed as a starting point. For instance, the law firm MinterEllisonRuddWatts, which advised ECDD, has stressed this applies only to NZDD as described, not a blanket ruling for every stablecoin.
And outside this single designation, issuers and users still sit in a grey area between the FMA and the Reserve Bank.
Even so, that narrow piece of clarity provided by the FMA’s ruling may well become increasingly important as stablecoins move further into mainstream finance.
As their use expands in payments, remittances and digital commerce, understanding what they are – and what they are not – may prove just as important as understanding their risks.
*Murat Ungor, Senior Lecturer in Economics, University of Otago and Olena Onishchenko, Senior Lecturer in Finance, University of Otago. This article is republished from The Conversation under a Creative Commons license. Read the original article.