‘Digital rupiah’ won’t cut out banks, fintech, BI claims

The bank announced it would not offer interest rates on the so-called “digital rupiah” to avoid creating “head-to-head” competition with financial products created by banks.

Vincent Fabian Thomas

Vincent Fabian Thomas

The Jakarta Post


Bank Indonesia Governor Perry Warjiyo speaks during the central bank’s annual meeting with financial stakeholders in Jakarta on Nov. 30.(Reuters/Willy Kurniawan)

December 6, 2022

JAKARTA – Bank Indonesia (BI) has said its plans to establish a central bank digital currency (CBDC) will not disrupt existing banking and digital payment systems, as it seeks to elbow out cryptocurrencies and pave the way for cooperation with other monetary authorities.

The central bank announced on Monday that it would not offer interest rates on the so-called “digital rupiah” to avoid creating “head-to-head” competition with financial products created by banks, namely savings and time deposits.

BI sought to assure banks that the digital rupiah would not affect the liquidity required by the sector, as the currency would be similar to the physical banknotes that already existed in the financial system.

“We will make sure that disintermediation risk can be minimized,” Ryan Rizaldy, BI’s head of payment system policy, told reporters on Monday.

Disintermediation refers to cutting out a middle agent in a business process.

BI said it would include non-bank financial institutions, such as fintech and digital wallet firms, as wholesalers in the CBDC system alongside conventional banks, which will be BI’s main target for distribution of the digital rupiah.

“We will retain what is already in the system. We will still open ways to level the playing field between banks and non-banks,” Ryan said.

BI acknowledged that the inclusion of non-bank firms in the CBDC program could increase cybersecurity risks and systemic financial risks. In response, BI said, it would work to improve safety measures and would carry out a series of tests before putting the system into full use.

BI’s assistant governor and head of the payment system policy department, Filianingsih Hendarta, said there would be a tight screening process to determine which financial institutions would be involved in the CBDC wholesale process.

This would include assessments of risk management standards, IT security and levels of capital, among other criteria.

“Our supervision of these financial institutions will be much tighter,” Filianingsih said on Monday.

Indonesian Fintech Association (Aftech) secretary general Budi Gandasoebrata and Indonesian Payment System Association (ASPI) chair Santoso Liem said they supported BI’s plans to develop a digital rupiah and were ready to participate.

Josua Pardede, chief economist at private lender Bank Permata said on Monday that he hoped the digital rupiah would not disrupt the stability of the financial system and would help strengthen financial markets.

What’s the point?

BI Governor Perry Warjiyo claimed on Monday that the digital rupiah would communicate that the central bank was the country’s only legitimate digital-currency-issuing institution amid the growing influence of decentralized cryptocurrencies.

Perry said the digital rupiah was BI’s answer to the public’s growing need for digital payments and that the instrument would complement existing payment methods such as banknotes, bank-issued credit and debit cards as well as digital wallets.

The digitized currency would also allow Indonesia to cooperate with other central banks that were developing their own digital currencies, Perry said.

All but one of the Group of 20 member countries are exploring CBDCs, with 16 developing digital currencies or starting pilot projects, including South Korea, Japan, India and Russia, data from the Atlantic Council’s CBDC tracker shows.

Indonesia’s digital rupiah is to be developed in three stages under the “Garuda Project”. The first two stages will seek to establish a CBDC for use at the wholesale level, while the third will move to develop the retail use of the digital currency.

BI said it had not set any specific deadlines for the stages and that the development of the digital rupiah would be dictated by the preparedness of the financial industry.

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