On Tuesday, 28 January 2025, the Bank of Papua New Guinea (BPNG) unveiled the results of its Proof of Concept (PoC) study on Central Bank Digital Currencies (CBDCs), marking a significant milestone in the nation’s digital financial development. The event, held at the Hilton, was presented in collaboration with Soramitsu, Mitsubishi, and supported by the Japan International Cooperation Agency (JICA) and the Government of Japan.
In her opening remarks, Ms. Elizabeth Genia, Governor of BPNG, expressed appreciation to the partners and stakeholders involved in the study. She emphasised the importance of global collaboration in addressing local challenges, acknowledging the expertise and support provided by Soramitsu, Mitsubishi, JICA, and Japan’s government.
Background and Rationale for CBDC Exploration
The PoC study was launched as part of BPNG’s exploration into the potential of Central Bank Digital Currencies, a growing trend among central banks worldwide due to advancements in digital financial technologies. CBDCs are being increasingly considered as a way to modernise payment systems, improve financial inclusion, and address various economic challenges. Papua New Guinea is exploring these opportunities to potentially reshape the nation’s financial system.
Since 2018, BPNG has been involved in exploring blockchain and digital payment technologies, beginning with its co-sponsorship of the London Blockchain Week. The central bank has also focused on the development of digital identity technologies, the establishment of a regulatory sandbox for fintech innovations, and fostering collaborations with private sector innovators, all aimed at driving financial inclusion and enhancing the efficiency of the financial sector.
Objectives of the CBDC Proof of Concept Study
The study aimed to evaluate how a CBDC could be integrated into Papua New Guinea’s existing financial infrastructure. The main objectives of the PoC were to:
- Enhance Efficiency: CBDCs have the potential to reduce reliance on physical cash, lowering costs related to cash handling and distribution. By improving transaction efficiency, a CBDC could streamline payment systems across urban and rural areas.
- Strengthen Security: Built on blockchain technology, CBDCs offer an inherently secure platform for transactions. The technology significantly reduces the risks of counterfeiting and fraud, providing a trusted environment for digital payments.
- Promote Financial Inclusion: One of the key goals of the CBDC PoC was to address the financial inclusion gap in Papua New Guinea. A digital currency could provide a secure, easily accessible payment method for individuals and businesses, including those in remote areas where traditional banking services are limited.
PoC Study Design and Key Findings
The PoC study was designed to simulate the core functions of a digital currency system within Papua New Guinea’s financial ecosystem. With the support of its international partners, BPNG conducted controlled tests involving the simulation of digital payments and transaction security. Staff from BPNG, JICA, and the Japanese Embassy participated in these simulations, providing valuable insights into the feasibility of a CBDC.
While the detailed results of the study will be presented later, the strategic importance of this PoC is clear. It provided an opportunity to:
- Identify the potential benefits of a CBDC tailored to Papua New Guinea’s unique economic and financial landscape.
- Gather feedback from users and merchants to better understand their needs and expectations for a digital currency.
- Assess the operational and infrastructural requirements for scaling up the initiative into a broader pilot phase.
Challenges and Next Steps in CBDC Development
As with any innovation, the exploration of a CBDC presents several challenges. Ms. Genia acknowledged the significant legal and regulatory gaps that must be addressed, noting that the framework for CBDC development is still in its early stages. Additionally, the need for robust ICT infrastructure and a clear policy framework to support digital currency innovation was highlighted as crucial to the success of the initiative.
While the study represents an important first step, BPNG acknowledges that further research and trials are necessary before a CBDC can be fully integrated into the national financial system. The next phase will involve expanding the scope of the study to include additional financial institutions and exploring the potential for cross-border payments with neighbouring countries. These efforts will require the development of a detailed roadmap, which will balance technological advancements with the necessary legal, regulatory, and infrastructural considerations.
A Continuing Journey Toward a Digital Financial Future
The BPNG’s exploration of CBDCs is part of the broader effort to engage with innovative financial technologies. Over the years, the bank has sought to understand how digital currencies and blockchain technologies can be used to improve the financial ecosystem. The CBDC Proof of Concept study is seen as a continuation of this effort, building on prior research and experimentation.
The study also aligns with the bank’s ongoing efforts to address key financial challenges in Papua New Guinea, particularly the need to bridge the gap in financial services and improve accessibility to banking in remote areas.
Closing Remarks and Future Vision
In her closing remarks, Ms. Genia thanked all those involved in the PoC study and reaffirmed the importance of international collaboration in driving forward the digital finance agenda. While the road ahead presents challenges, the work undertaken so far has laid the groundwork for a more secure, inclusive, and resilient financial system.
Looking ahead, BPNG remains committed to continuing its exploration of digital currencies and their potential role in enhancing the country’s economic growth and financial infrastructure. The event concluded with an open Q&A session, inviting participants to engage with the findings and contribute their insights on the future of CBDCs in Papua New Guinea.