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Papua New Guinea is the latest nation to throw its hat in the ring for a central bank digital currency (CBDC), with the Pacific island nation seeking use cases around financial inclusion for its citizens.
This CBDC effort is an experimental project designed to assess the offering’s viability before a full-scale commercial rollout. The Bank of Papua New Guinea disclosed that the studies will proceed cautiously to avoid upsetting the delicate balance of the nation’s financial ecosystem.
The central bank has enlisted Japanese-based technology firm Soramitsu to provide technical support for the CBDC foray. PNG’s government aims to use the CBDC to reduce the island’s dependency on cash transactions while providing financial services to the country’s unbanked population.
The central bank is also keen on using CBDCs to prove digital ownership of funds as a novel solution to the island’s rising financial crime levels. While it may be difficult to trace the movement of cash, PNG’s central bank says security agencies will be empowered to seize CBDCs if they are found to be the proceeds of crime.
As the country slowly inches its way to digitization, CBDCs are expected to lower the cost of digital transactions while providing financial authorities with real-time monetary policy implementation. Apart from local benefits, the island nation has its sights on improving the state of cross-border transactions with CBDCs for remittances and bilateral trade.
However, Papua New Guinea’s move to explore CBDCs will not be easy, given its glaring infrastructure limitations. Low digital literacy levels and trust from the local populace are additional issues plaguing the full-scale adoption of CBDCs in the country, forcing regulators to turn to Soramitsu to lead the efforts.
To save cost, Soramitsu will not proceed with a new distributed ledger for PNG’s CBDC but will use a common platform for several Pacific island nations. Soramitsu’s open-source Hyperledger Iroha ledger has been used in several regional CBDC efforts and will most likely be used for the CBDC pilot.
Soramitsu’s experience in CBDCs
Turning to Soramitsu was an easy choice for Papua New Guinea’s regulators given the company’s experience in the CBDC ecosystem in the Pacific and Southeast Asia.
Soramitsu has previously participated in CBDC feasibility studies in Vietnam and the Philippines, racking impressive results. The company added to its resume following an integral role in Laos’ CBDC push, cementing its place as an industry expert by developing Cambodia’s Bakong.
Recent moves have seen Soramitsu team up with the Solomon Islands, Palau and the Marshall Islands to develop their CBDCs but the company has its sights on a common CBDC-based cross-border payments platform in the long term.
Watch: Finding ways to use CBDC outside of digital currencies
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