The Bank of Indonesia (BI) plans to launch a digital rupee as central banks around the world continue to compete to issue CBDCs. A report broke this news on May 25, noting that the authority is already evaluating platforms on which the digital rupee can be executed. The Bank of Indonesia’s decision to issue a CBDC is reportedly aimed at modernizing the Indonesian financial system while protecting the country’s economy against cryptocurrencies.
According to the report, BI hopes that a digital rupee will also help speed up domestic and international transactions, especially after the country’s digital transaction volume surged during the COVID-19 pandemic. BI data revealed that the frequency of digital banking transactions increased 60.3% annually. The bank also revealed that the total amount of funds traded through digital platforms increased by 46% to reach 3,114.10 rupees (1,537.56 pounds).
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According to BI Governor Perry Warjiyo, the central bank is evaluating the digital rupee’s ability to help it achieve its monetary policy and payments system goals. He added that the bank is conducting tests to verify whether Indonesia’s financial infrastructure is ready to incorporate the digital rupee. Since the rupee is the only legal tender in the country, Warjiyo said BI would regulate the digital version of the currency in the same way that it regulates banknotes and card transactions.
Indonesia’s CBDC will face stiff competition
Although Indonesia banned the use of cryptocurrencies in payments in 2017, the country allows its citizens to exchange cryptocurrencies for cryptocurrencies freely. However, this restriction has not prevented citizens from approaching the nascent sector.
Adrian Pollard, co-founder of the white-label cryptocurrency exchange software company bitHolla, shared his point of view with Invezz:
Indonesia as of late has been embracing cryptocurrencies like crazy. What is interesting about user habits is the adoption of lower domain assets such as Dogecoin or XRP. Almost anything that looks cheap, people seem to be adopting. If the Indonesian central bank tries to launch their own CBDC, I think they will have a hard time competing against these native crypto assets that have clearly caught the attention of the locals.
Pollard added that Indonesia is one of the top users of the Internet and mobile devices. As such, this would present another challenge for the CBDC, as it would have to run on a user-friendly platform and local banks are not exactly good at developing user interfaces.
