Bank Indonesia advances wholesale CBDC trials following public consultation

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Bank Indonesia (BI) has published the results of a public consultation probing into the viability of central bank digital currency (CBDC), hinting at a three-pronged approach.

The central bank confirmed in a 33-page report that it will pursue the development of a wholesale CBDC it dubbed Project Garuda to keep pace with the changing financial landscape. Forty-two entities forwarded their comments to the BI over its plans for a wholesale CBDC with the involvement of commercial banks, non-banking financial institutions, government agencies, and private individuals.

Participants shared their responses to 35 questions spanning several areas, including choice of technology, access, fund transfer, issuance and redemption of the digital rupiah, settlement finality, and the broader implications for a full-scale rollout.

Regarding technical standards, most respondents favored using permissioned blockchain over a centralized system to prevent “a single point of failure.” The BI narrowed the choice to a Proof of Authority (PoA) mechanism, citing its scalability and resilience in the face of transaction surges.

In terms of access, wallet issuance will be within the purview of the banking regulator, while commercial banks will be tasked with wallet management. Respondents emphasized the need for the central bank to establish proper guardrails to ensure user privacy and proper supervision.

Centered on interoperability, the BI’s report indicates a focus on investing in middleware to promote cross-platform transferability for the digital rupiah. The document noted that despite the reliance on blockchain, it will proceed with the development based on “technology-neutral principles.”

The BI’s release of the report follows the issuance of a proof-of-concept (PoC) with the central bank keen on adopting proper technical standards for its wholesale CBDC offering.

“We have issued the proof-of-concept for the digital currency, and we expect to design the technology and infrastructure we will be using in the near future,” said BI Governor Perry Warjiyo.

Proceeding with a group of collaborators

Several commercial banks and technical partners prop up the BI’s decision to proceed with the wholesale CBDC pilot roped to participate in the studies. The coalition is expected to explore blockchain-based interbank settlements, cross-border payments, and use cases in the metaverse.

After completing studies into a wholesale CBDC, the BI plans to integrate with a securities ledger before entering the retail space. The Indonesian central bank must grapple with existing interbank payments and the gradual incursion of privately issued stablecoins into its financial ecosystem.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: How CBDCs on Bitcoin should work