Bank Indonesia Explains Development of Digital Rupiah, Reveals 86% of Central Banks Explore

CBDC
Bisnis.com, JAKARTA - As many as 86% of central banks worldwide are exploring central bank
digital currencies (CBDC), including Bank Indonesia (BI). The development progress of CBDC or
digital rupiah by BI is currently in the experimental stage. Deputy Director of BI's Payment
System Policy Department, Agung Bayu Purwoko, said the development of CBDC is part of the
central bank's payment system policy direction. As is known, to develop the digital rupiah, Bank
Indonesia has launched the Garuda project. "When will it [digital rupiah] be implemented?
What we are doing is experimentation," he said at the Talkshow Industry Financial F5 event
titled "Navigating National Payment System Security in the Digital Era" on Wednesday
(12/6/2023).
He said BI is developing digital rupiah in line with the growing digital financial ecosystem
worldwide. "Tokenization [with crypto technology] becomes an issue that is continuously
discussed. In the past, money stood alone, now with virtualization, crypto, this then brings the
direction of how to combine money and use cases with smart contracts to provide a positive
impact," said Agung. This article has been published on Bisnis.com with the title "Bank
Indonesia Explains Development of Digital Rupiah, Reveals 86% of Central Banks Explore CBDC,"
Meanwhile, the development of CBDC is also gaining momentum in central banks worldwide.
"Our learning, more than 86% of central banks explore [CBDC]. Not only for retail but also
wholesale," said Agung. Previously, BI Deputy Governor Filianingsih Hendarta said the digital
rupiah is continuously being studied, including from a risk perspective. "We assess all of that,
we also pay attention to inputs," she told reporters at the Parliament Complex last month
(11/15/2023).
Filianingsih said BI has issued a consultative paper and has received various inputs from
stakeholders regarding the development of CBDC or what is called digital rupiah. The
consultative paper explains the design of digital rupiah development in the immediate state
phase, namely wholesale digital rupiah cash ledger, which includes the introduction of
technology and basic functions, such as issuance, destruction, and fund transfer. The impact of
issuing digital rupiah on the payment system, financial stability, and monetary aspects are also
discussed in the consultative paper. However, the International Monetary Fund (IMF) in the
Central Bank Digital Currency Virtual Handbook highlights several impacts of CBDC
development. Changes in the macroeconomic environment caused by CBDC are expected to
strengthen the transmission channels of monetary policy if CBDC is designed properly. IMF
states that at a moderate level of CBDC ownership, the effects on monetary policy transmission
are expected to be relatively small in normal times. However, these effects can become more
significant in environments with low interest rates or financial market pressures where the
value of CBDC increases. Another impact, because CBDC is safer and more efficient, there is the
potential for competition for funds or deposits in banking. The magnitude of this impact will
depend on how attractive CBDC can be as a substitute compared to deposits. With this
condition, banks will raise deposit interest rates and the cost of banking funds will increase. As
a result, bank profits will decrease until the point where higher costs cannot be fully passed on
to higher loan interest rates. Individual ownership restrictions, according to the IMF, will limit
the transition from deposits to CBDC.