CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

Indonesian central bank wants digital rupiah to benefit real economy

By Andreas Ismar

09:48, 2 December 2021

Bank Indonesia building in Jakarta, Indonesia
Bank Indonesia building in Jakarta, Indonesia - Photo: Shutterstock

Bank Indonesia is exploring using a central bank digital currency (CBDC) as legal tender as it wants a digital currency which will benefit the real economy in light of the increasing popularity of cryptocurrency trading in the country.

Investment in cryptocurrencies in Indonesia has jumped over IDR478trn ($33bn) in the first seven months of 2021, rising sevenfold from IDR65trn in the whole of 2020, according to the trade ministry but cryptocurrencies are not yet recognised as legal tender across the archipelago.

The country’s central bank views cryptocurrencies as investment vehicles without any underlying assets and warned investors to be vigilant against high volatility in the instrument.

“Digitalisation has to improve economic productivity and not only a financial [investment] like crypto. It must have significant impact to the real sector,” Juda Agung, an assistant to central bank’s governor, said in a Parliament sitting.

Digital rupiah

The majority of central banks globally are studying the feasibility of adopting CBDC in their financial system and some has began piloting for the implementation in the near future. In Asia, Cambodia has introduced its CBDC – the Bakong – as the country wants to move away from its dependence on the US dollar.

In June 2022, Taiwan become the latest Asian country to announce it will pilot a CBDC, both a retail and wholesale one in its case. 

The world’s second largest economy, China, meanwhile is testing its digital yuan in major cities such as Shenzhen, Beijing and Shanghai, and might unveil it to international audience in the upcoming 2022 Beijing Winter Olympics.

For its part, Bank Indonesia aspires to create the digital rupiah to enable cheaper and faster settlement process.

“A CBDC is needed amid the rapidly rising digital transactions. We need to ensure that a CBDC can maintain effectiveness of monetary policy, stability of the financial system and financial inclusion,” Juda, a career central banker with over three decades of experience said.

Bank Indonesia treading carefully

A person familiar with Bank Indonesia’s thinking told Capital.com that the central bank is treading carefully on CBDC as best practices for such currency are yet to be found. But the need to quickly adapt to the new technology has accelerated the regulator to speed up the improvements on existing payment system.

“BI [Bank Indonesia] is still at early stage of CBDC design, with various studies from other countries. At the moment, the central bank is focussing on improving its infrastructure such as interoperability between banks and fintechs, improving real-time gross settlement, and cross-border digital payments with countries like Malaysia and Thailand,” the person said.  

The person added that no fixed timeline has been set for digital rupiah adoption.

David Sumual, chief economist at Bank Central Asia – Indonesia’s largest private lender – also viewed that the digital rupiah will need “several years” to be developed.

ETH/USD

3,420.85 Price
+0.110% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

XRP/USD

0.57 Price
-9.300% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

BCH/USD

384.80 Price
+1.330% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.50

DOGE/USD

0.12 Price
-2.860% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

“Bank Indonesia is still at feasibility study phase of CBDC. The IT investments for CBDC will not come cheap, and their priorities are to improve the existing payments infrastructure,” David told Capital.com.  

Regulatory reforms needed

Aside from IT infrastructure, Indonesia needs to revise several regulations to enable digital currency in the country.

For instance, as cryptocurrency is considered to be a commodity, they are being supervise by the Trade Ministry’s Commodity Futures Trading Regulatory Agency (locally known as BAPPEBTI), which does not have the mandate to oversee the wider financial system.

“Crypto is currently under the [supervision] of BAPPEBTI. We need to review this as crypto’s implication to the financial system is quite significant,” said Juda.

Other regulation that requires amendment include the currency law as it currently does not recognise digital currency, Juda added.

Haram or halal discourse

As regulations on cryptocurrency are not well-established, Muslim clerics in the country are trying to provide better guidance on the growing popularity of the instrument – the trade ministry said that 7.4 million Indonesians invested in crypto assets as of July, compared with four million at the end of 2020.

Recently, the Indonesian Ulema Council (known locally as MUI) deemed cryptocurrency as legal tender is haram – not allowed under Islamic laws – due to unclear underlying assets and huge volatility carry elements of uncertainty and excessive speculations.

The ulema council will submit its views on crypto assets to the National Sharia Council which has the authority to clear out investment instruments that are Sharia-compliant.

Meanwhile, the Wahid Foundation, founded by the daughter of prominent Muslim cleric and Indonesia’s fourth president Abdurrahman Wahid, has put out a more lenient view on crypto investments as crypto assets can be treated as a form of commodity, although agreed that it can not be used as legal tender.

CBDC to put an end to Haram-Halal dilemma  

The mixed views among local Muslim scholars have put some members of the public in a dilemma and having formally established digital currency and clearer regulations will provide clear-cut boundaries.

“Bank Indonesia’s stance has been very clear. We forbid crypto as payment means,” Juda said, adding that globally, the use of cryptocurrencies are primarily for investments and not transactions.

“CBDC can be part of our efforts in countering the use (of) cryptocurrency in the financial system. The public will have greater faith on CBDC’s credibility,” he said.

Related topics

Rate this article

Related reading

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 630,000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading