JAKARTA: Bank Indonesia (BI) has announced that its roadmap for the country’s own central bank digital currency (CBDC) named the “digital rupiah” will start with a wholesale design, in a move that may bring the country closer to finally implementing the long-awaited digital currency.
The roadmap was launched within a white paper named after the country’s mythical creature “Project Garuda,” with an aim to explore possible designs to implement the digital rupiah.
Its development will be divided into three stages with the first two only involving banks and BI’s roles.
BI will start the CBDC development for wholesale digital rupiah, but the functions will be limited for issuance, redemption and transfer of funds, which the central bank sees as the most feasible for an initial stage.
For the next phase, the digital currency will be expanded to support financial market transactions and monetary operation.
The last stage, meanwhile, will integrate wholesale and retail design with the latter involving functions of distribution and collection, as well as peer-to-peer transfers and payments, which will finally be available for the general public.
“At the end we will integrate both wholesale and retail digital rupiah end-to-end with synergy and collaboration nationally and internationally,” BI governor Perry Warjiyo told audiences in BI’s annual meeting on last week.
The white paper also mentioned that only limited parties designated by BI could have access to the wholesale rupiah by converting their reserves at the central bank.
These wholesalers could be the one distributing digital rupiah to customers through retailers like banks and digital payment system firms or distribute it straight to consumers by themselves.
BI, too, could interact with consumers without the need to be bridged by wholesalers or retailers as intermediaries.
The white paper wrote that banks generally are those considered suitable for the wholesalers’ role, whereas involvement from non-bank financial institutions will further increase operational exposures and systemic risk.
The race to introduce the digital rupiah has been BI’s long-standing vision, which many consider to be related with its effort to balance the increasing adoption of much-decentralised cryptocurrencies like many other central banks do.
BI, like many other central banks, considers the CBDC as a way to emphasise that they are the sole authority to issue currency, including the digital one.
Furthermore, digital currency is seen as a way for central banks to foster integration of the digital economy and pave the way for financial inclusion in the country.
The Group of 20 statement in October also mentioned that G20 member countries welcome the exploration of the CBDC to be potentially designed to facilitate a cross-border payment system.
BI has started researching and preparing its CBDC project since the first half of 2021 and it will soon gain more support as lawmakers are drafting legal basis to issue and allow adoption of digital rupiah as banknotes and coins.
Bhima Yudhistira, executive director of the Centre of Economic and Law Studies said that retail digital rupiah should be the one to be developed first, as it was directly related to financial inclusion and was in line with BI’s target to improve digital economy.
It could fasten transactions between vendors and customers through the push to make everything cashless, he said, adding that digital currency offered a more efficient ecosystem and could be made widely accessible by not involving costly physical form that must be constantly reproduced, resupplied and redistributed.
Furthermore, Bhima noted that the use of cryptocurrency, which BI wants to avoid, mostly happened at the retail transaction level, hence the urgency to develop retail CBDC first.
Doddy Ariefianto, associate head of finance programme at Binus University said on last Thursday that BI could seek to consolidate firms and payment systems in the back end first instead of going directly to retail the digital rupiah that could disrupt existing digital wallets as well as banks that provide such services.
“We knew that there are already many things similar to retail CBDC and many of which have already been operated by private firms,” Doddy said.
Through the white paper, BI explained that the retail CBDC was much more complex than the wholesale one, which is why it will be developed much later.
Ibrahim Kholilul Rohman, senior research associate at think tank IFG Progress said that it was still too early for anyone to tell in what way the wholesale CBDC design could benefit the economy, as it would depend on BI’s purpose in developing it, which the central bank still needed to elaborate.
However, Ibrahim lauded BI’s path to soon develop the retail one as it can be a solution in combating lingering “shadow economy” in the country, which refers to many unrecorded economic activities for intentional or unintentional reasons.
According to several studies, he continued, the rate of “shadow economy” in Indonesia is quite high, hovering around 15% of the country’s total economy, but can be lowered if more people go cashless, including through the introduction of retail CBDC. — The Jakarta Post/ANN