Bank Indonesia has released new findings as part of its three-phase plan to develop a central bank digital currency (CBDC) for the digital rupiah. The central bank’s latest work highlights a technical proof of concept (PoC) for wholesale CBDC (wCBDC), evaluating two blockchain technologies: R3’s Corda and the Ethereum-based Hyperledger Besu. While no definitive choice has been made, further exploration is planned.
The digital rupiah initiative aims to evolve through three key phases. The first phase focuses on the core functions of wCBDC, including issuance, redemption, and fund transfers, with the current PoC forming a critical step in this stage. The second phase will explore the integration of wCBDC with digital securities ledgers, requiring strong technical interoperability. The final phase will address cross-border payments and lay the groundwork for a potential retail CBDC.
Privacy and Technical Considerations
A key finding of the PoC centres on privacy – a significant requirement for Bank Indonesia. Corda, built with privacy in mind, was noted to directly meet the bank’s criteria, including preventing the leakage of participant identities even in encrypted transactions. By contrast, Besu, rooted in Ethereum’s transparency-focused design, requires additional privacy enhancements to meet these standards.
This challenge mirrors trends seen elsewhere. Brazil’s DREX CBDC project, for example, opted for Besu but faced delays addressing privacy concerns. Similarly, recent Commercial Bank Money Token trials in Germany highlighted Corda’s suitability for out-of-the-box privacy, while Ethereum-based solutions continue to rely on ongoing developments in confidentiality technology.
Bank Indonesia also explored alternatives such as confidential UTXO (Unspent Transaction Output), a model that resembles cash transactions. While the approach worked on both Corda and Besu, it introduced a centralised notary function, posing a single point of failure. To mitigate this, the report suggests further investigation into solutions like Zero-Knowledge Proofs (ZKP).
Next Steps for the Digital Rupiah
Looking ahead, Bank Indonesia plans to delve deeper into privacy-preserving mechanisms, including ZKP implementations and liquidity-saving mechanisms. Multi-validator deployments will also be explored to enhance system resilience.
The PoC achieved three primary objectives: it confirmed that distributed ledger technology (DLT) can support a wholesale CBDC, demonstrated smart contracts’ role in improving flexibility and efficiency, and established connectivity with conventional financial systems using the ISO 20022 standard.
This progress underscores Bank Indonesia’s methodical approach to the digital rupiah, aligning with global efforts by central banks to explore wholesale CBDC solutions for more efficient and secure financial infrastructures.
