How Indonesia’s G20 Presidency Should Deal With Digital Currencies

JAKARTA (The Jakarta Post/Asia News Network): The rapid development of digital technology is affecting the global economic system and financial transactions. One of the burning questions is related to the use of digital currencies or cryptocurrencies in the global financial system.

Using 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 global currency solution; on the other hand, there are those who see them as a threat to the mature conventional financial system.

This question, of course, is of concern to almost every country in the world, especially the large countries that control almost the entire global financial system. As we know, the Group of 20, the 20 largest economies in the world, control over 80% of the global economy, 75% of trade flows and 60% of the world’s population.

As chair of the G20 this year, Indonesia plays an important role. This year, the G20 is focusing on the theme Recover Together, Recover Stronger, which reflects a shared commitment to global recovery from the Covid-19 pandemic.

Most of the issues discussed 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 said the finance component of Indonesia’s G20 chairmanship would cover six main issues.

First, the exit strategy or post-pandemic economic policy. Second, the efforts that should be made to overcome the impact of the pandemic or the scarring effect to ensure future growth. Third, the policy has focused on payment systems in the digital era, including digital currencies, which are managed by the central bank.

Fourth, issues focused on financial inclusion, particularly regarding the role of digital technology and opportunities to increase access for micro, small and medium enterprises (MSMEs) in terms of finance 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 tax issues which will discuss international tax packages and create certainty, transparency and development of the tax regime.

One of the issues that caught the world’s attention during 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 or popular and only reach a small section of society with a high level of financial literacy. However, it is expected 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 the euro.

These problems, of course, will threaten the role of monetary authorities in each country due to the significant increase in the popularity of cryptocurrencies.

The increasing use of cryptocurrencies forces the monetary authorities of all countries, especially large countries, to deal with this trend. The issue of digital currencies has become increasingly prominent and heating up during Indonesia’s G20 Presidency.

The central banks of the G20 countries should agree on the use of digital currencies in their economic system; not by adopting only the cryptocurrencies currently circulating in the market, but with policy adjustments more in line with the conventional policy roles of central banks, such as taking into account macroprudential aspects, inflation factors and the financial accessibility for the community at large.

In order to stem the use of cryptocurrencies, which are not officially accepted in many countries, the central banks of the major G20 countries have taken the initiative to follow this digital trend.

However, the Central Bank Digital Currency (CBDC) under development has a different principle from the cryptocurrencies currently circulating in the money market.

Cryptocurrencies are decentralized, do not require a central bank or commercial banks in their transactions, and transactions occur peer-to-peer from sender to receiver.

Therefore, they are not an accepted and legal means of payment in various countries, including Indonesia, and do not meet the criteria of a financial asset.

Meanwhile, CBDC is a digital currency issued and controlled by the central bank and used as a legal means of payment to replace physical currency and can be classified as a financial instrument.

China is one of the G20 countries to quickly adapt this flow by promoting a digital renminbi policy of more than US$300 million in its economy, ahead of the rollout of a new policy that is broader and deeper this year. next.

Other central banks of the G20 countries are considering and conducting research on the use of this digital currency, such as the European Central Bank (ECB), the Bank of Japan (BoJ) and the US Federal Reserve.

The UK went one step further with the issuance of Britcoin by the Bank of England (BoE).

Bank Indonesia’s (BI) stance is in line with other major countries’ central banks that prohibit transactions using cryptocurrencies as they are not supervised and controlled by the monetary authority.

Therefore, BI continues to promote the use of CBDC instead of cryptocurrencies. The digital currency policy that will be agreed by the G20 countries will, of course, slightly stem the wild ball of cross-border cryptocurrencies, which are seen as a threat to economic stability and payment systems.

Indonesia’s G20 Presidency is an important time to bring the digital currency system to further development and adapt to increasingly advanced digital technology.

*** The author is a senior researcher at the Fiscal Policy Agency of the Ministry of Finance. The opinions expressed are his own.

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