Indonesia is setting out its plans and concept for the digital rupiah, a blockchain-based currency, starting with transactions between local banks.
The so-called “Project Garuda” -- named after the mythical bird -- is Bank Indonesia’s attempt at experimenting with central bank digital currencies to safeguard its position as the sole authority issuing legal tender in a rapidly changing digital era. The monetary authority recently issued a white paper to detail its plans.
“Digital rupiah is inevitable. It’s the transaction tool of the future,” said Governor Perry Warjiyo in a briefing on Monday. The move will keep Indonesia at the forefront of efforts to develop a CBDC, like Project Dunbar and Project mBridge that Bank Indonesia also participates in, he added.
Here’s what we know so far about the digital rupiah:
The Stages
The digital currency will be rolled out in three phases. First, the wholesale form will be used by mostly larger banks to transfer funds among themselves and the central bank.
Next, the CBDC use will be expanded to the rest of the interbank money market and monetary operations. Lastly, the digital rupiah will be used by retail consumers for everything from fund transfers to payments.
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The Players
Bank Indonesia will start by limiting the use to qualified banks, who would need to convert their reserves at the central bank to obtain digital rupiah tokens.
“This ensures the issuance of digital rupiah won’t impact the size of Bank Indonesia’s balance sheet, meaning it has a neutral monetary impact,” said Filianingsih Hendarta, the head of payment systems policy.
Later, anyone would be able to get CBDC for retail use by exchanging everything from banknotes to deposits, including those held in electronic money form. The central bank may distribute digital rupiah directly to end-users, especially in areas that lack access.
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The Technology
The central bank wants to ensure the digital rupiah supports cross-border transactions, so it will be built on a combination of distributed ledger technology and centralized infrastructure. A closed-source ledger is preferred for wholesale use as the participants would be known, while a centralized infrastructure is more efficient for retail use as it can support faster speed and high volumes.
Wholesale CBDC will be token-based, while the retail form will be both account- and token-based.
The Future
Bank Indonesia will push to have digital rupiah be the legal tender on local digital platforms and applications, such as for the still-nascent metaverse.
Globally, the central bank will work with its counterparts to discuss CBDC exchange rates, cybersecurity and capital flows management.
