Indonesia Wants to Counter ‘Shadow Central Banking’ With CBDC

Bank Indonesia joins dozens of central banks across the world in exploring a CBDC, starting with a fresh white paper


Source: Shutterstock


In Indonesia, the central bank has formally laid out plans for a central bank digital currency (CBDC), pitched to combat what it calls rising “cryptoization” of the country’s digital economy.

Bank Indonesia’s new CBDC white paper outlines how “shadow currencies” and “shadow central banking” are furthering unregulated credit creation around the world through crypto.

Two years of pandemic-era investments into the crypto sector have fueled this system. As such, the bank said it has been forced to recalibrate its approach and policies to promote digital forms of “trusted money.” 

“Digital rupiah will complement the existing money being commonly used by the public, including physical cash. The task of Bank Indonesia in this regard is to respond to public demand and preferences.”

Bank Indonesia’s CBDC initiative, Project Garuda, will first examine potential use cases of a wholesale CBDC before expanding to include retail tests. 

Wholesale CBDCs mostly relate to interbank settlements between financial institutions. They differ from retail CBDCs, which are digital representations of a country’s fiat intended for use by the general public.

In an email to Blockworks, a representative labeled the project “high-level” to be rolled out in three stages. First, testing redemption and transference of a wholesale CBDC. Then, financial markets transactions will be explored including money market business models. 

The final phase will explore integrating an end-to-end wholesale digital rupiah into the financial ecosystem alongside further experimentation with a retail CBDC. The spokesperson didn’t offer a timeline for the project.

Indonesia CBDC adds to long list of pilots

Project Garuda echoes other nations’ attempts to explore and develop their own sovereign digital currencies.

Around 40 countries have already begun researching their use including in the US and Australia while a further 10 have advanced to a proof of concept. China — the world’s most developed economy to do so — currently has a CBDC in the pilot stage, with tokens distributed in lotteries across several provinces.

Seven nations have developed a pilot which have been tested in real world scenarios while just two countries, the Bahamas and Jamaica, have fully launched a CBDC, data from CBDC Tracker shows.

“Most central banks are still mindful before taking a decision to issue a CBDC for the public,” the bank said. “There is no one-size-fits-all solution in the development of CBDC as each country has its own unique characteristics and specific policy contexts.”

The bank said it would conclude its findings in a policy stance review.

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