The National Bank of Georgia (NBG) is considering launching a publicly available Central Bank Digital Currency (CBDC) starting from summer 2022, to leverage new technologies to enhance efficiencies of the domestic payment system and financial inclusion.
“CBDC's may become essential for the financial ecosystem and spur private innovation and development of new financial technologies. Therefore, full private sector involvement in technology choices, interface design, customer management, KYC and AML/CFT, regulatory compliance, and data management will be crucial. If you are developing CBCD technology and are interested in joining us in this ambitious journey, please contact us via the Financial Innovation Office at InnovationOffice@nbg.gov.ge. Please title the subject "PPP on CBDC" and provide a brief introduction about your company and your technology. Also, indicate whether you would like to offer solutions to a CBDC operator or be an operator of CBDC. NBG will consider range of proposals that facilitates the direct management of the CBDC by either the NBG or by a regulated private company,"- reads the statement from NBG since spring this year.
Giorgi Isakadze, Editor-in-Chief of Forbes Georgia and Elene Kvanchilashvili, Executive Editor of Forbes Georgia sat down with Papuna Lejava, Vice-Governor of the National Bank for a quick update on Digital Lari project and its SWOT analysis.
Elene: Digital Lari – a very interesting, a very ambitious project for the world – what does this project entail and where do you see challenges and opportunities, let’s do a brief SWOT analysis of Digital Lari.
Elene, Giorgi, first of all, thank you for inviting me to speak about this topic. Yes, let me start by saying what is digital GEL. It’s just another form of GEL. It’s not a new type of money. It’s same as cash but it’s a different form of it. We currently print cash on paper, tomorrow we will print cash digitally. Opportunities are not fully observed and I would say, unlimited because this technology brings to the market a very new way of developing financial technologies. For us primarily it’s a form of exchange and we want to assign it a legal tender status and buy services and goods with digital Lari, but on top of it we can build different layers – not we as a Central Bank, but as a country: Fintech companies, banks can build different layers of different services like smart contracts, the instant payments, wallets and so on. These can develop fintech sector very quickly. Like every project, especially digital project, it also comes with certain risks. Primarily what comes to mind with the digital project is a cyber-risk and yes, digital GEL will also face this risk, but I would say not more than traditional payments systems face and what’s more important, the technology gives us the opportunity to fight against cyber-crime with new instruments. We can follow transactions unlimitedly towards its origination and return transactions back and cancel transactions quite easily.
Giorgi: You mentioned various parties involved in the process. So, where does NBG stand and who are the rest stakeholders and interest groups and businesses?
Yes, absolutely. I would say this should be primarily private sector driven initiative. We will create a viable product, so to say; we will create the payment means but actual products should be built upon it by the private sector – be it banks, the fintech companies and others. Our goal is to create just available infrastructure for these companies to build new financial products on digital GEL.
Giorgi: And issuing digital GEL is will be exclusively run by the NBG.
That’s correct. Mining will not be available by the private sector or other players – only issuer will be the Central Bank.
Giorgi: It’s sort of PPP – a draft version?
Yes, it will be public-private partnership. But we are still at the stage of defining roles more specifically.
Elene: So, what will be the technology? Will that be blockchain and if it’s so then it would be interesting to see what are some of the differences and similarities of digital Lari with crypto-currency? Because we all read and we all know that crypto-currency is not regulated and Central Banks all over the world are working on this on the one hand and on the other – we see some international payments systems who are seriously considering of incorporating crypto-currencies into their payments systems.
I can say with a very high likelihood it will be based on the blockchain technology – not exclusively but mostly it will be based on the blockchain technology because its characteristics and technical specifications are quite attractive, modern and blockchain can be used by different types of technology, so it will be compatible to different types of technology. As for cryptocurrencies, there are some similarities like for example blockchain, fast, instant, it will work 24/7, will be cheap, but it has some differences: One, as we already mentioned, the Central Bank will be the only issuer of the digital currency and there will be no other miners, and secondly, it will not have speculative nature – so its value will not change as quickly as currently changes for bitcoin and other currencies. So it may have some investment value if we allow interest payments on digital Lari but it will not be a speculative as current crypto-currencies.
Elene: So, will it be regulated by NBG and the current regulations and the legislation enough to regulate digital Lari?
Digital Lari will definitely be regulated by National Bank of Georgia.
Currently, what we are counterplating is relatively light changes to the legislation – just to grant digital Lari the same level of legal tender as we have for paper Lari. In the future we will see of course as more products are built upon digital Lari - there may be more changes required to the legal system as well just to keep this project developing. But at initial stages we are attempting to make quite small changes and just grant the same level to digital Lari as we have for paper money.
Elene: Is the market ready for digital money and building on what Giorgi asked earlier about the stakeholders – would they need some kind of an upgrade to use digital Lari?
I really hope that Georgian market will absorb digital Lari quickly because what gives me this hope is the past performance of financial sector customers including in the payments as banks have been developing – mostly banks but also other fintech companies – new technological products, the market has been absorbing these products quite rapidly. This gives us the reason to hope that digital Lari will also be absorbed. To be honest, we do have some specific request from specific companies but until we have exact characteristics and exact model of Central Bank digital currency which is public and known to everyone, it’s difficult to say what will be the exact demand from the sector but as an anecdotal evidence we do have few ideas and few companies that are talking to us and having their business ideas shared with us.
Giorgi: Your office is in close coordination with other Central Banks including in our region. What I’ve heard is that Turkey was definitely running this project; also, Russian Federation was thinking about this project, as well. I do not have so far any news about Azerbaijan or Armenia. Where are we? Are we still leaders in this regard – I mean, the digital currency?
I wouldn’t say we are the leaders anymore because there are about 85% of world Central Banks that are in some way or another working on the Central Bank digital currencies – some are doing research, others are doing pilots, there are couple banks that have already launched Central Bank digital currency. We want to be at the front side of the trend and not be lagging too much and I hope we can achieve this but unfortunately, I cannot say at this stage that we are the leaders because about 35 Central Banks have already piloted the digital currency and we have not yet.
Elene: What is the reason for that?
Well, it’s a good question and probably why now is also a good question. The current technologies that we are using for cash have been invented about 5 centuries ago by China. Since then we have seen a lot improvement in technology, in finance a lot of developments. The 20th century was technological revolution; the 21st century is a revolution for payments industry – but we are still using the same old cash for transactions, right? And Central Banks are starting to realize that they will have to offer new means of payment which is more modern, more compatible to modern technologies to allow their core function of payment to be modern and not to lag behind the development of rest of the financial technology fields.
Giorgi: Thank you so much and good luck.
Elene: I wish this is the best answer to the pandemic as well.
Giorgi: Absolutely.
