Indonesia CBDC trial enters second phase

Indonesias central bank plans to launch the second phase of its central bank digital currency (CBDC) trial this year, building on the success of the first phase from the first half of the year.

The first phase focused on a wholesale CBDC (wCBDC) deployed on distributed ledger technology. The Bank of Indonesia (BI) partnered with local commercial banks and fintech firms, with the focus being mainly on the simple issuance, exchange and redemption of the digital rupiah.

The second phase will center on integrating the digital securities ledger. In its payment system blueprint for the next five years, the central bank revealed its plans to test the issuance and redemption of digital securities, including tokenized real-world assets and native blockchain tokens.

In this second phase, the regulator will explore the interoperability of digital securities and digital rupiah depositories.

BI will then proceed to use digital securities in the financial market and other monetary operations. According to the blueprint, it intends to explore whether blockchain can replace the existing systems and what, if any, added benefits the technology offers.

The trial will eventually explore other secondary functions, such as making CBDC programmable or composable. Some countries, including Kazakhstan, have opted for a programmable CBDC to enhance accountability. The Asian nation recently programmed its digital tenge to be exclusively used for payments in the construction of a railway connecting it to China.

Indonesia‘s wholesale CBDC trials are expected to set the stage for the country’s transition into a retail CBDC. As with most countries, Indonesia believes that a wholesale option is easier and less risky to implement as it only involves banks and other payment companies.

A recent survey by the Bank for International Settlements (BIS) found that global interest in a retail CBDC had significantly waned in the past two years. BIS found that 81% of advanced economies were exploring a wholesale option, compared to 27% focused on a retail alternative.

The Swiss National Bank (SNB) captured this trend earlier this year, noting, “Retail CBDC could fundamentally alter the current monetary system and the role of central banks and commercial banks, with far-reaching consequences for the financial system. From a Swiss perspective, the risks of retail CBDC currently outweigh its potential benefits.”