Fintechmode Indonesia CBDC

Indonesia Begins To Explore Its Digital Rupiah CBDC

There are many opinions on whether countries need a central bank digital currency (CBDC). Indonesia seems convinced it is a viable path forward. Its digital rupiah will undergo thorough analysis and testing to push the country into the era of “advanced digital transformation”. 

Does A Digital Rupiah Make Sense?

The first question regulators and banks should ask is whether the country needs a centralized digital currency. If digital and mobile payments aren’t popular, a CBDC will struggle to gain mainstream adoption. Governments and banks aim to exert more control over user spending and saving, but there may be better ideas than the digital rupiah. However, the project will soon enter the exploration and proof-of-concept stage, confirming some interest in this venture.

Bank Indonesia wants to remain the only institution allowed to issue Indonesian digital currency. However, cryptocurrencies like Bitcoin would pose a legitimate threat to that status. Moreover, any crypto miner in Indonesia is effectively a digital currency issuer but without the same constraints as the central bank. It also seems Indonesia has a rapidly growing digital economy. Even then, a CBDC isn’t necessarily the answer but rather an attempt to keep a centrally-issued currency relevant at all costs.

Although there are many CBDC projects globally, their real-world implications remain minor. Except for the digital Yuan in China and the Sand Dollar elsewhere, there is little excitement regarding CBDCs. Consumers and companies show little or no appetite for having even less control over their money. However, the BI aims to continue to engage with other CBDC projects and achieve interoperability opportunities. 

Claims by BI to make the digital rupiah an “effective money supply process” seem far-fetched. While a digital currency enables more transparency, it remains up to banks and governments to make that data accessible to everyone. In addition, a CBDC would not necessarily counter the threat of inflation, as the money supply can be tweaked willy-nilly. There will never be any CBDCs with a hard supply cap like Bitcoin’s 21 million BTC. 

Ongoing Development And Future Plans

There is much work to do before the digital rupiah can be released. As the development stage is approaching, there will be a gradual rollout with ample testing. Moreover, the BI identifies three stages of development, focusing on a cash ledger, cash & securities ledger, and end-to-end integration. Every stage has distinct roadmap goals to check, with no distinct timelines. It isn’t easy to gauge how long the development of this project will take and whether it will go through all stages. 

Furthermore, there are many risks to address. Creating a CBDC introduces many cyber threats and security risks. Ensuring the right boxes are checked is an ongoing task requiring tremendous time and effort. Moreover, there are identification and verification procedures to consider. A CBDC is not necessarily a future-proof solution, or any solution at all. Even so, it will be interesting to see what comes out of the digital rupiah.