Bank Indonesia to use blockchain technology for digital rupiah trial in 2024
[JAKARTA] Bank Indonesia (BI) is pushing ahead with plans to trial the use of its new central bank digital currency (CBDC) – known as the digital rupiah – in 2024.
BI governor Perry Warjiyo said that the aim is to use blockchain technology to create a digital version of the Indonesian currency. The CBDC will be used for wholesale interbank settlement next year, a move that will bring Indonesia closer to joining a select group of countries including China and India that have already launched their own CBDC.
“We have issued the proof-of-concept for the digital currency and we expect to design the technology and infrastructure we will be using in the near future,” said Warjiyo at a recent press conference.
BI is currently working with large-scale financial institutions for the trial phase to gather their input and feedback. Warjiyo added that the digital currency will be used on a platform that will make it compatible with the digital currencies of other central banks.
The central bank wants to experiment with the use of the digital rupiah on two main tracks, namely wholesale and retail. In the latter, consumers would have direct access to the CBDC and use it just like they would cash. For wholesale, the focus would be on making payments between banks and BI more efficient through the use of blockchain.
Analysts said that the advantage of using a CBDC is that it is fully backed by the central bank. The CBDC can be exchanged in foreign-exchange markets, and on online exchanges such as Coinbase. It can be used to settle payments between individuals and businesses as well.
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It is also regarded as more secure, less volatile and more energy-efficient than private cryptocurrencies. Indonesia currently bans the use of cryptocurrencies as a means of payment, but allows investment in the assets.
BI deputy governor Filianingsih Hendarta told The Business Times that the central bank wants to develop a digital form of legal tender that can compete with private-sector alternatives by being safer and cheaper to use.
Industry players said that it was important that the central bank and the government design the digital rupiah well and implement it properly, for it could pose risks to payment systems and financial inclusion if not done right.
Analysts from the Jakarta-based think tank Institute for Development of Economics and Finance (Indef) said that BI will hope the digital rupiah can replicate the same level of success as QR payments.
When BI launched its QR payment platform Quick Response Code Indonesian Standard (QRIS) in May 2019, it hailed the move as a way to bring order to an increasingly complex payments ecosystem. Since then, the number of QRIS transactions has reached 1.5 billion with a total value 24.9 trillion rupiah (S$2.13 billion).
“Digital payments could be settled cheaper and faster (with the CBDC) than they currently are – perhaps instantly, which would eliminate credit risk, and without the need for correspondent banks when crossing borders,” said Indef researcher Nailul Huda.
However, he noted that CBDCs could impact traditional banking by potentially changing the way individuals and businesses hold and transfer funds. This may influence the demand for traditional banking services, he added.
“Companies that provide payment services, especially those relying on traditional payment methods, might face competition from CBDCs,” he said.
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