Indonesia has been one of the most promising blockchain-friendly countries in the world. The country has always been committed to financial and technological innovation. With blockchain technology providing the best of both worlds, it only seems right that it moves towards this emerging trend.
While Indonesia has made several overtures to the blockchain sector, one of its most important came earlier this year when it partnered with a foreign service provided to digitize gold and silver trading.
A Big Step for Financial inclusion
According to reports, the Indonesian government partnered with Kinesis, a gold-backed monetary system based in the Cayman Islands, to launch a blockchain-based savings and payment product that will improve access to Kinesis’s services for Indonesian citizens.
The reports explained that the product - known as PosGO Syariah - is Shariah-compliant, making it perfect for the world’s largest Muslim-only population. With it, users will be able to trade silver and gold with physical delivery. They will also be able to enjoy seamless transactions, savings, and portfolio management.
PosGO Syariah has support from Kinesis as well as the Indonesian National Sharia Council. Kinesis developed it in partnership with the country’s postal service, PT Pos, and the product already has support from several top precious metals trading organizations like ABX, ICDX, and PT Bullion Ecosystem International.
The most impressive part of this system is that it provides its services to customers whether or not they have bank accounts. This is especially important with Indonesia having one of the most unbanked populations in the Asia-Pacific region. According to a Google article, the unbanked population of Indonesia as of 2018 amounted to 180 people.
The app’s gold and silver currencies are available on a blockchain platform at the rate of one token per ounce of gold or gram of silver. Tokens can be spent anywhere or exchanged via Kinesis for any other cryptocurrency. Speaking on the new product, Thomas Coughlin, Kinesis’s CEO, explained that it would help more Indonesians to spend gold as a currency.
“People are increasingly moving away from traditional currencies and I am humbled to present Kinesis as a robust and scalable solution for digitalised and mobilised gold as a currency,” Coughlin said in part.
Indonesia Moves to Form a CBDC
Like many governments around it, Indonesia has also moved towards currency digitization. In May, Reuters reported that the Bank of Indonesia had announced plans to issue a central bank digital currency (CBDC). Amongst other things, the development was spurred by the country’s jump in digital payments.
Perry Warjiyo, the central bank’ Governor, reportedly explained that the digital rupiah will help improve payment efficiency and bolster financial inclusion in the country. He added that the rupiah remains the only accepted form of payment in Indonesia, and the Bank of Indonesia will look to regulate a digital version of the currency in the same way that it regulates card and cash transactions.
As Warjiyo added, the Bank of Indonesia is now conducting tests to see the benefits of a digital rupiah. These tests will examine the asset’s possible benefits to the financial system and the system’s readiness for a CBDC. The Bank of Indonesia will also look into different technology options that it can use to launch the CBDC.
Crypto Still a No-No In Indonesia
It is worth noting that while the Indonesian government is friendly with blockchain and working on a CBDC, cryptocurrencies themselves aren’t so welcome there.
Indonesia’s government banned crypto payment as far back as 2017. Last month, the government sent out marshalls and enforcers to ensure that companies and institutions across the country are abiding by this ban.
In a virtual seminar, Warjiyo explained that the Bank of Indonesia had mobilized official supervisors to ensure that crypto isn’t being used as a payment method. The policymaker reiterated in the interview that local financial firms and payment service providers remain prohibited from facilitating crypto payments or using cryptocurrencies as a part of their financial services in any way.
Warjiyo added that cryptocurrencies aren’t legally recognized payment methods under the
Indonesian constitution, Bank Indonesia Law, and Currency Law. The country now seems to be one of the many which are banning cryptocurrencies from participating in financial life but also looking to reap the benefits of crypto by launching CBDCs.
Several countries have done this. Nigeria is reportedly looking to launch a CBDC soon, even though its central bank banned commercial banks from facilitating crypto payments earlier this year. Even China, the country with the most progress in CBDC development, has done a thorough job of scrubbing the country of any vestige of cryptocurrencies. If they can have it both ways, so can Indonesia.