Central Bank Digital Currency: Resolution Amid the Rumbling Cryptocurrency or Just an Illusion in This Country?

Bank Indonesia is the main party authorized to regulate and maintain the smooth running of the payment system in Indonesia. This state institution, known as an independent party, stated that the payment system is always related to the process of transferring a certain amount of money from one party to another.  The evolution of the payment system in Indonesia is divided into two, namely, the development of a cash payment system and a non-cash payment system. The Indonesian people themselves began to recognize the cash payment system since the end of the barter period, which focused on and traded customary values.  In this modern society, the percentage of the use of cash payment instruments is smaller, which is around 43% compared to the use of non-cash payment instruments. This is due to inefficiency in cash management and expensive procurement.  Referring to Bank Indonesia (BI) data, the value of digital payment transactions or electronic money reached IDR 47.19 trillion throughout 2018. This figure increased four times compared to the transaction value of the previous year which was only IDR 12.37 trillion. The growth of digital transactions from fintech services was also recorded the highest. In the past year it reached 55%, exceeding the increase in the use of services belonging to e-commerce (47%), banks (41%), cash (35%), and telecommunications providers (33%). The corona virus (Covid-19) pandemic is also an additional reason for using non-cash payment instruments. In addition to causing a health crisis, the Covid-19 pandemic has also caused a global economic crisis that threatens the survival of various countries in the world, including Indonesia. However, on the other hand, the Covid-19 pandemic has created a new trend on the financial side, namely the fulfillment of digital transactions.  Therefore, BI itself considers it important to prepare adequately, including to deal with changing situations through the launch of a new type of rupiah in digital form which is seen as efficient to compete with cryptocurrencies such as Bitcoin and Ethereum which are on the rise in Indonesian society.  The creation of digital rupiah/Central Bank Digital Currency (CBDC) is expected to be part of the process of digitizing the Indonesian economy that is integrated with one another. Bank Indonesia plans to make the digital rupiah as Indonesia's official digital currency. To that end, Bank Indonesia will also coordinate with central banks in other countries. This CBDC will later be considered a digital version of physical cash issued by the central bank. Where it has similarities like digital wallets for fintechs, but has one fundamental difference, namely money in the form of CBDC is equivalent to deposits or deposits at the central bank or in other words CBDC will be a digital representation of money that is a symbol of state sovereignty or sovereign currency that issued by the central bank and become part of its monetary obligations.  Bank Indonesia (BI) itself stated that it is studying more deeply about modern integrated transaction recording technology (blockchain) which allows many different entities to store copies of transaction history, so that the "history" can be distributed and not controlled by a single entity. And the possibility of issuing a central bank digital currency (Central Bank Digital Currency/CBDC) for domestic payment transactions. This CBDC will also be equipped with several attributes and features, including Distributed Ledger Technology (DLT) which allows banks to track money. Banks naturally need to keep financial records, such as how much money a person has and what transactions they have made, in a ledger. Instead of a single central database that stores all the financial records of people, DLT consists of multiple copies of transaction history that are maintained and stored in separate financial entities and maintained by the country's central bank. However, like other resolutions, the plan to implement CBDC also certainly does not escape the pros and cons among the community. The Bank of International Settlements (BIS), known as the parent of central banks, gave a warning call to the central bank of any country that wanted to develop and launch a CBDC. 

The bank must "carefully" anticipate the implications, especially as they relate to monetary policy and overall economic stability. However, this assumption is in contrast to the opinion of Christine Lagarde, as chairman of the International Monetary Fund (IMF), according to which central banks in the world should encourage CBDC "exploration" given the reduced demand for cash and the increasing preference for digital money. There are differences of opinion among experts regarding the impact of the CBDC on monetary policy and financial stability, which is still unclear, making the implementation plan even more blurred.  On the one hand, the use of CBDC can lead to substitution of bank deposits if non-banks consider CBDC to be superior to bank deposits. This will lead to a decrease in the bank's deposit base and may reduce the capacity of banks to fund credit operations. The direct impact on monetary policy remains unclear, but will also depend on whether the CBDC will change money market conditions. In addition, digital currencies also cannot provide anonymity like cash because all transactions can be tracked. On the other hand, CBDC is about modernizing central bank money and core financial market infrastructure. This gives the money that the central bank generates new functions and utilities and, amid the important role of central bank money, is set to be transformative for the comprehensive financial system. Which makes central bank digital currency the next evolution of central bank money. Which will ensure the central bank can continue to play a key role amid the increasing digitization of payments and will be the catalyst for digitizing payments. BI itself has conducted a study/assessment to see the potential and benefits of CBDC in relation to conditions in Indonesia, which of course will have implications for the differences in the design and architecture of the CBDC to be chosen, along with risk mitigation. However, in the end all choices are in our hands, are we going to make CBDC enemy or friend to the country?