CBDCs for Indonesia – 1 (Project Garuda)


In May 2021, Bank Indonesia announced its intention to launch a CBDC to be known as Digital Rupiah. Three reasons were cited for this move — the observed boom in digital transactions during the pandemic, the need to ward off the threat from cryptocurrencies, and the need to modernise the financial system, and speed up domestic and international payments. BI announced it was engaged in examining how the Digital Rupiah would help meet its objectives on monetary policy and payment systems, and in assessing the readiness of the financial infrastructure.

White Paper

About a year and half later, on 30 November 2022, BI released a white paper that explores the best design for the Indonesian CBDC. The white paper detailed Digital Rupiah’s high-level design and initiated public discourse about its development plan. Here are the key points discussed in the paper:

CBDC is a future-proof solution. It is a mechanism to bridge the requirement to meet public demand with the central bank’s century-old role in maintaining a well-functioning financial system. CBDC acts as the fundamental mechanism for central banks to preserve monetary and financial system stability in the digital environment.

CBDC issuance isn’t easy. CBDC must be carefully planned to be economically beneficial. CBDC should not impair central bank policy mandates in monetary and macroprudential domains (“do no harm” concept), it must coexist with other forms of money (“coexistence” principle), and it should stimulate greater innovations and efficiencies.

The Digital Rupiah project is named Project Garuda.

Project Garuda by BI contains activities to plan and design Indonesia’s CBDC, the Digital Rupiah. This project reflects BI’s needs to:

(i) handle the rapid change in digital economy and finance as the exclusive authority for issuing legal currency in Indonesia; (ii) boost its position on the world stage; and (iii) speed up the integration of digital economy and finance.

The project intends to build Digital Rupiah to serve as:

(i) the legal digital means of payment in Indonesia, (ii) the main instrument for BI to carry out its legal mandate in the digital era, and (iii) a way to boost financial inclusion, innovation, and end-to-end efficiency.

Digital Rupiah is end-to-end integrated. BI will issue Digital Rupiah in two types: wholesale Digital Rupiah with limited access servicing wholesale transactions (w-CBDC) and retail Digital Rupiah with wide access supporting retail transactions (r-CBDC).

Digital Rupiah’s agile design will allow new, innovative, and inclusive business models to grow on top of it. Digital Rupiah will have characteristics that ensure safety and availability, such as offline capabilities, which will improve access and financial inclusion in disadvantaged regions. Digital Rupiah will be programmable (e.g., smart contracts), which may boost financial growth. Digital Rupiah will tokenize tradable securities to enhance the market.

Digital Rupiah’s technological architecture will have three layers: the technology platform, digital assets, and use cases. The platform layer will contain smart contracts, identity services, regulatory services, cryptography, API, and sandboxes. BI will manage Digital Rupiah and Digital Securities in the digital asset layer. The use case layer will use digital asset layer capabilities and services. This layer will contain bank-owned and third-party use cases.

Effective Digital Rupiah implementation requires legislation and policies. Associated rules and policies will be examined iteratively from monetary, macroprudential, market deepening, and legal perspectives. This includes aspects, such as, using Digital Rupiah as a settlement asset for monetary activities or the money market, intermediation issue, procyclicality issue, operational risk management, consumer protection, privacy and data protection, and AML/CFT compliance.

Digital Rupiah will be implemented iteratively. Development will have 3 phases. Phase 1 (immediate phase) of w-CBDC Rupiah trial will include issuance, redemption, and transferring. w-CBDC use cases will be expanded in the next phase (intermediate phase). Final phase (end state) will test end-to-end combined w-CBDC and r-CBDC. This method examines different design possibilities to find the best answer.

Project Garuda’s Digital Rupiah design complements earlier BI initiatives, such as, the Blueprint for Indonesian Payment System (IPSB) 2025 and the Blueprint for Money Market Development 2025 programs to stimulate national digital transformation. Together, these projects will assist a national end-to-end digital economy and finance.

Project Garuda’s reach makes it a national-scale program that should be implemented in sync. Collaboration among stakeholders, such as the financial authority, ministry, and industry, is vital to the project’s success.

IBF Net Group as a key stakeholder in the Indonesian digital space aims to contribute to the project through a series of seminars and publications, discussions in the media involving thought leaders and professionals in the CBDC space and in partnership with universities, thinktanks and professional associations. In order to create public awareness, it plans to introduce courses and training programs in the field of digital finance in general and CBDCs in particular. As an immediate response, it will publish a series of write-ups, videos and podcasts at regular intervals to generate a healthy policy debate around this theme.

Project Garuda: Navigating The Architecture of Digital Rupiah

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