The CBDC is the digital form of fiat money; in this case, the digital version of the Indonesian rupiah. Therefore, it is different from the so-called digital currency (also known as virtual currency or cryptocurrency) which are not issued by the state and therefore lack the legal tender status declared by the government.

Through Bank Indonesia Regulation No. 18/40/PBI/2016 on the Implementation of Payment Transaction Processing as well as Bank Indonesia Regulation No. 19/12/PBI/2017 on the Implementation of Financial Technology, the central bank of Indonesia bans the use of virtual currencies (such as Bitcoin, Ethereum, Dash, Litecoin and Ripple) as payment instruments in Indonesia.

These virtual currencies are banned as there is no underlying asset or responsible authority/administrator, hence these currencies are more volatile, risky and speculative. This can trigger financial system instability, while there is also concern that digital currencies open room for money laundering or the funding of terrorist activities. Lastly, Bank Indonesia stated that virtual currencies undermine the sovereignty of the Indonesian rupiah within the territory of Indonesia.

However, considering the rising popularity of digital currencies in the world and the expansion of electronic trade and retail, most analysts believe that Bank Indonesia has no other option than to allow some sort of virtual currency in the near future.

For the central bank the advantages of a digital rupiah include lower operational and transaction costs, especially in the remote areas where the distribution of physical money is burdened by infrastructure troubles. A virtual rupiah, on the other hand, can be stored on smartphones, cards, or e-wallets and therefore have a much higher degree of efficiency.

The study that is being conducted by Bank Indonesia, and which expected to be concluded in 2020, includes an examination of he implications, impacts, procedures, consumer protection, legality, and technology.

Read also: Use of Cryptocurrency Transactions in Indonesia Subject to Sanctions