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Digital Rupiah: Centralizing Decentralization?

Bank Indonesia (BI) revealed a white paper regarding the roadmap for the issuance of Indonesia's Central Bank Digital Currency (CBDC), namely the Digital Rupiah, which will soon be publicized. As a central bank-controlled digital money, CBDC is a legal tender to substitute physical cash and will be a digital representation of the country's currency. It serves three fundamental functions of money - store of value, medium of exchange, and unit of account. The Digital Rupiah will be designed to reach all levels of society, particularly in remote and rural areas with low technology penetration, allowing it to be implemented widely across the country. In addition, the Digital Rupiah will also provide an alternate option for individuals without bank accounts to create transactional accounts and engage in the digital economy. The Deputy Governor of Bank Indonesia, Doni P. Joewono, stated that CBDC issuance has three prerequisites that a country must have. First, the CBDC design must not disrupt monetary and financial system stability. Second, the 3I (Integrated, Interconnected, and Interoperable) CBDC design with the FMI-Payment System infrastructure. Lastly, the importance of the technology used in the experimental stage to understand how CBDCs can be implemented (DLT-Blockchain and non-DLT). Doni also stated that the central bank's mandate on digital Rupiah was aimed at boosting innovation and efficiency. Furthermore, as the monetary authority, the central bank must foresee and encounter numerous potential dangers that may emerge, such as economic, monetary, and financial system stability.

In the agenda of the G20 Presidency pre-event, Indonesia Digital Finance Economy Festival 2022, Doni P. Joewono additionally explained that the creation of Indonesia's CBDC is a response to the rapid development of digitalization and the increasing use of digital currencies such as cryptocurrency. The central bank believes that CBDC is more stable since it is a fiat currency, as opposed to crypto, from which the CBDC is inspired. Doni stated that crypto contains a major risk to the stability of the financial and monetary system because it could be used for fraudulent activities, making it not recognized as a payment instrument in Indonesia. As of now, cryptocurrency is growing rapidly and is widely used globally. Cryptocurrency has the advantages of being decentralized, trustless, and private, making it irreplaceable by the potential benefits of CBDC because it is a centralized currency that might risk users' privacy. Nevertheless, CBDC could arise various possible difficulties such as technical infrastructure, connectivity, and interoperability with the existing systems. Whether crypto can coexist with CBDC depends on the policies imposed by the central bank. Governments' pessimistic attitudes might use CBDCs to reduce the influence of cryptocurrency stablecoins.

Reflecting on several other countries, the centralized digital currency has been implemented. China, for instance, released e-CNY (Digital Yuan) by the People's Bank of China (China's central bank) operated by authorized operators and adopts a centralized management model and a two-tier operational system. E-CNY is the primary substitution for cash (M0) and is used aligned with the Renminbi (RMB) to serve domestic retail payment demands. Although China already has a substantial digital payment infrastructure, the digital yuan has had trouble breaking into the market because of China's already-existing, citizen-preferred providers such as Alipay and WeChat Pay. Moreover, compared to the digital payment system, e-CNY is still lacking in capacity and scalability. On top of that, the digital currency ought to raise its users in the first place. According to government data, there are currently 261 million e-CNY wallets, a substantial number of users. However, closer inspection reveals that most of these wallets are practically empty and most likely not in active use, with the average balance for individual wallets being RMB 3 (less than $0.50). Apart from China, other countries have begun to implement CBDC as well. Among the G20 countries, 19 have considered the usage of CBDC, with 16 already in the development or pilot stage. President Biden has also directed studies into both the digital yuan and a prospective digital dollar in the United States, while Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen have indicated their administration's support for such efforts. All things considered, CBDC implementation in Indonesia has been anticipated. However, in-depth research is very much needed in terms of competition, facility, and accessibility to ensure the government-owned digital payment system will be able to sustain itself in the long run.


CNBC Indonesia

Detik Finance

Kementerian Keuangan RI

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