JAKARTA (The Jakarta Post/Asia News Network): The rapid development of digital technology affects the global economic system and financial transactions. One of the hot issues is related to the use of digital currencies or cryptocurrencies in the world's financial system.
The use of digital currencies globally is like two sides of a coin. On the one hand, many people welcome the presence of this type of currency as a single-world currency solution; on the other hand, there are those who consider them a threat to the mature conventional financial system.
This issue, of course, is a concern for almost all countries in the world, especially the big countries that control almost the entire global financial system. As we know, the Group of 20, the world’s 20 largest economies, controls more than 80 per cent of the world's economy, 75 per cent of trade flows and 60 per cent of the world's population.
As the president of the G20 this year, Indonesia plays an important role. The G20 this year focuses on the theme Recover Together, Recover Stronger, which reflects a joint commitment to the global recovery from the Covid-19 pandemic.
Most of the issues at the G20 meeting focus more on global economic and financial issues, which are discussed in the Finance Track of the G20 Presidency.
Finance Minister Sri Mulyani Indrawati has said the finance track of Indonesia's G20 presidency would cover six main issues.
First, the exit strategy or post-pandemic economic policy. Second, efforts that should be implemented to overcome the impact of the pandemic or the scarring effect to secure future growth. Third, policy focused on payment systems in the digital era, including digital currencies, which are handled by the central bank.
Fourth, issues focused on financial inclusion, especially regarding the role of digital technology and opportunities to increase access for micro, small and medium enterprises (MSMEs) in terms of financing and marketing.
Fifth, sustainable finance focuses on sustainability goals and credible climate change financing and creates justice for all countries. And sixth, focus on international taxation issues that will discuss international tax packages and create tax regime certainty, transparency and development.
One of the issues that have caught the world's attention in Indonesia’s G20 presidency is related to cryptocurrencies. The current trend of investing in cryptocurrency assets continues to attract public attention.
Currently, cryptocurrencies are not yet widespread nor popular and only reach a small layer of society with a high level of financial literacy. However, it is predicted that in the near future, more and more people will switch to these cryptocurrency assets and make cryptocurrencies as popular as conventional currencies such as the dollar and euro.
Those issues, of course, will threaten the role of monetary authorities in each country because of the significant increase in cryptocurrencies' popularity.
The increasing use of cryptocurrencies forces monetary authorities in every country, especially large countries, to address that trend. The issue of digital currencies has become increasingly prominent and is heating up during the G20 Indonesian presidency.
The central banks of the G20 countries are likely to come to an agreement regarding the use of digital currencies in their economic system; not by purely adopting cryptocurrencies that are currently circulating in the market, but with policy adjustments that are more in line with conventional central bank policy roles such as the consideration of macro-prudential aspects, inflation factors and affordability by the wider community.
In order to stem the use of cryptocurrencies, which are not officially accepted in many countries, the central banks of the G20 major countries have taken the initiative to follow this digital trend.
However, the Central Bank Digital Currency (CBDC) that is currently being developed has a different principle from the cryptocurrencies that are currently circulated in the money market.
Cryptocurrencies are decentralised, require neither a central bank nor commercial banks in their transactions and transactions take place peer-to-peer from sender to recipient.
Therefore, they are not an accepted and legal means of payment in various countries, including Indonesia, and do not meet the criteria as a financial asset.
Meanwhile, the CBDC is digital money issued and controlled by the central bank and used as a legal means of payment to replace physical money and can be categorised as a financial instrument.
China is one of the G20 countries adapting this flow rapidly by promoting a more than US$300 million digital renminbi policy into its economy, ahead of the rollout of a new, broader and deeper policy next year.
Other G20 country central banks are considering and conducting research on the use of this digital currency, such as the European Central Bank (ECB), Bank of Japan (BoJ) and the United States Federal Reserve.
The United Kingdom has gone one step further with the issuance of Britcoin by the Bank of England (BoE).
The position of Bank Indonesia (BI) is in line with the central banks of other major countries that prohibit transactions using cryptocurrencies because they are not supervised and controlled by the monetary authority.
Therefore, BI continues to promote the use of the CBDC instead of cryptocurrencies. The digital currency policy that will be agreed upon by G20 countries will, of course, slightly stem the wild ball of cross-border cryptocurrencies, which are considered a threat to economic stability and payment systems.
The G20 Indonesia presidency is an important moment to bring the digital currency system toward further development and adapt to increasingly advanced digital technology.
*** The writer is a senior researcher at the Fiscal Policy Agency of the Finance Ministry. The views expressed are his own.