Orta Vadeli Program declaration made in the past week had a clear emphasis on digital money and revealed the plans to continue Digital Lira practices with the first phase and advanced tests with widespread participation.
While the pandemic continues to impact the world with many variants, our lives are also digitalizing and transforming at top speed. Blockchain-based crypto assets we are introduced after 2008 are expanding their diversity and enhancing their scope every day.
Governments initially considered blockchain technologies, which support individuals as a value transfer and store tool against central authorities due to their decentralized structure, a threat to their monetary sovereignty, financial structure, and legal regulations. Today, however, many of them are attempting to integrate into the blockchain ecosystem. CBDC (Central Bank Digital Currencies) is among the most critical topics of these implementation efforts.
CBDC is a brand new concept. Considering the last couple of years, several institutions and organizations brought forward similar projects, with even many significant steps taken in this regard. Here are the key developments which accelerated the process of transforming fiat currencies into blockchain-based digital assets for governments:
Developments in decentralized cryptocurrencies,
The increased market value of stablecoins,
Decentralized finance (DeFi),
Non-fungible tokens (NFT),
And economic and social impacts of the Covid-19 pandemic.
In such a fluid environment, we regularly witness new developments on the digital currencies created by central banks to preserve their sovereign rights in the monetary system. The reported news reveals that governments handle the issue uniquely, considering this as a new supremacy race instead of international cooperation. Meanwhile, financial authorities highlight how global collaboration is crucial for the development of digital central bank currencies.
Although the US Federal Reserve (FED) announced a collaboration with the Bank for International Settlements (BIS), UK, and European central banks within the scope of the digital dollar project, it is evident that both in news and the map above that recognizing coordination and cooperation in this regard is highly difficult.
Today's banknotes and coins necessitated hundreds of years to develop global standards and practices. Uncertainties about the possible international standard of the digital currencies of the future leave many questions unanswered. Many concerns such as international exchange (swap and settlement), technology selection, and cyber security measures are still waiting to be clarified.
Digital currency practices in Turkey
In our country, the clause "Blockchain-based digital central bank money will be implemented" was officially included in Article 249.5 of the 11th Development Plan (2019–2023). Moreover, it was also reported that TÜBİTAK had started R&D studies to accomplish this goal.
During the Orta Vadeli Program declared in the past week, we witnessed the explicit emphasis on digital currencies. We discovered that the Digital Lira efforts, which completed the conceptual research step based on the statements in the program, will proceed with the first phase and advanced tests with widespread participation.
"Considering the results obtained from the technological, economic, and legal studies conducted for digital currency, the Digital Turkish Lira R&D Project will proceed with advanced pilot tests with more widespread and broad participation in line with the findings obtained from the first phase."
It would not be wrong to say that now we have more questions we cannot even think of asking than the ones waiting to be answered. As for now, we can only say that those countries that create favorable privacy and future-proof design will be the winners, instead of those who joined the competition first. Here, the most steady way to advance is to start the tests and pilot projects and reach the large masses. Apparently, we will discuss central bank digital currencies more throughout 2022.
FinTech Istanbul Advisory Committee Member, Digital CEO