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Central Bank Digital Currency: The Future of Money?

Central Bank Digital Currency

The phenomenon of Digitalization and the Corona Virus Disease 2019 (“COVID-19”) pandemic has made crypto assets grow rapidly as economic growth fell sharply, followed by the loosening of monetary and fiscal policies occurring evenly in all parts of the world, including Indonesia. Crypto assets have the potential to promote inclusion and efficiency of the financial system, but on the other hand, they also have the potential to create new sources of risk that can affect economic, monetary and financial system stability. The increasing public interest in crypto assets makes it difficult for the conventional banking industry to compete with the increasingly popular crypto assets. The inability of the central bank or central authority to withstand crypto assets is giving rise to a new idea, that is, to create an official currency in a version of crypto asset known as the Central Bank Digital Currency (“CBDC”). This article will discuss this further.

A. Central Bank Digital Currency in General

By definition, as stated by the Head of the Communications Department of Bank Indonesia, CBDC is a digital representation of money, which is a symbol of state sovereignty or sovereign currency. CBDC is issued by the central bank and becomes part of its monetary obligations. Currently, the central bank has monetary obligations in the form of currency (paper money and coins) and checking accounts used by the public as legal payment instruments. Currently, the majority of central banks all over the world have started conducting CBDC research and trial according to the characteristics of their country e.g., the Bank of England (“BOE”), which was the pioneer in initiating the CBDC proposal and later followed by the People’s Bank of China (“PBoC”), the Bank of Canada (“BoC”), the central banks of Uruguay, Thailand, Venezuela, Sweden, South Korea, and Singapore.

To date, there are 10 (ten) countries that have launched their CBDC. Nine of them are island countries in the Caribbean Sea i.e., Jamaica, Bahamas, Grenada, Antigua and Barbuda, Saint Kitts and Nevis, Montserrat, Saint Vincent and the Grenadines, Dominican Republic and Saint Lucia. While Nigeria, the largest economy on the African continent, launched CBDC in October 2021. The motivations for central banks of those countries to issue CBDC vary. For developed countries, the issuance of CBDC is driven by the need to support payment security and financial stability, mitigate private digital currency and respond to the use of digital currencies. Meanwhile, for developing countries, the issuance of CBDC is driven by factors to gain efficiency in the domestic payment system and financial inclusion as well as to mitigate shadow banking.

Central Bank Digital Currency

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According to The Economist, CBDC can be thought of as a digital version of physical cash issued by a central bank. CBDC is similar to digital wallets run by financial technology companies, but money in the form of CBDC has a value equivalent to deposits at the central bank. CBDC is a form of a shift in people’s daily transactions, which increasingly rely on personal digital wallets instead of central banks. Through CBDC, the central bank can further strengthen its position in payment instruments, including even in the digital version. In a country, the issuance of a CBDC requires 3 (three) pre-requisites that must exist :

  1. Design of CBDC that does not disrupt monetary and financial system stability;
  2. Integrated, interconnected, and Interoperable design of CBDC with the FMI-Payment System infrastructure; and
  3. The importance of the technology used in the experimental stage to understand how CBDC can be implemented (DLT-Blockchain and non-DLT).

B. Types of CBDC

In terms of access and use, according to the Official Monetary and Financial Institutions, Central Bank Digital Currency can be divided into two types i.e., wholesale and retail CBDC as explained in the following table.


Wholesale CBDC Retail CBDC
CBDC is issued in electronic form for the public’s needs and business transactions in general which can be accessed either directly or indirectly through financial intermediaries to end-users (community and merchants). The use of CBDC is limited only to certain institutions in the interbank market such as banks and other financial institutions


C. The Existence of Central Bank Digital Currency in Indonesia

In Indonesia, according to the Governor of Bank Indonesia, Bank Indonesia as the Indonesian central bank has taken steps relating to this Central Bank Digital Currency, as follows:


  1. Bank Indonesia has only conducted the study or white paper until the end of 2022 regarding regulations and will only see the potential and benefits of digital currency associated with conditions in Indonesia where this will have implications for the differences in the design and architecture of the CBDC that will be selected including their risk mitigation; and 
  2. Bank Indonesia coordinates with other central banks including through international forums to exchange views regarding the issuance of the digital currency or CBDC. Bank Indonesia will issue CBDC as a legal payment instrument with the wholesale CBDC concept. Through this concept, Bank Indonesia will distribute CBDC to financial players such as banks and large group payment service companies so that they will have an account at Bank Indonesia to become a distributor of digital rupiah just like accounts in the circulation of paper currency. 

Central Bank Digital Currency

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The study of the CBDC issuance conducted by Bank Indonesia is based on six objectives, among others:


  1. Providing risk-free digital payment instruments using central bank money
  2. Mitigating the risks posed by the non-sovereign digital currencies
  3. Expanding the efficiency and stages of the payment system, including for cross-border transactions
  4. Expanding and accelerating financial inclusion
  5. Providing new monetary policy instruments
  6. Facilitating the distribution of fiscal subsidies


The establishment of a digital currency by Bank Indonesia is expected to help industry players engaged in the digital economy, especially to improve internet usage literacy, digital financial literacy, or blockchain technology literacy as they provide many benefits.



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Disclaimer: This article has been prepared for scientific reading and marketing purposes only from ADCO Law. Accordingly, all the writings contained herein do not constitute the formal legal opinion of ADCO Law. Therefore, ADCO Law should be held harmless of and/or cannot be held responsible for anything performed by entities who use this writing outside the purposes of ADCO Law.