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Turkey has announced plans to introduce a central bank digital currency (CBDC) by next year, which will combine with a digital identity system.
Last week (October 25), Turkey published its , which laid out plans to issue a CBDC next year.
According to next year鈥檚 agenda, the central bank shall collaborate with the Ministry of Finance and the Scientific and Technological Research Council to research a digital lira, and then put a 鈥渂lockchain-based central bank digital currency into practice鈥.
In the first phase, the central bank will focus on testing the digital fiat in payments. Subsequently, the central bank will study the 鈥渋ntegration of digital Turkish lira systems with digital identity and FAST systems鈥, the document says. FAST is Turkey鈥檚 instant payment system that launched at the tail end of 2020.
Finally, in the final phase, the research will include commercial banks, which could participate in testing a wholesale CBDC.
The presidential programme says its main motivations for a CBDC include increasing efficiency of cross-border payments, reaching the estimated 40 percent of unbanked population of the country, and providing a better solution for its young, digital-savvy population. Turks under the age of 35 make up more than half of citizens of the country, according to the document.
Turkey has been struggling with a high level of inflation for almost a year now, with recent reports it at more than 80 percent. The high devaluation of money has prompted many Turks to invest in cryptocurrencies, which eventually made the government ban private coins altogether.
Turkey鈥檚 announcement to launch a digital lira follows a development journey for a CBDC that started several years ago and comes on the back of the completion of a successful proof-of-concept test in 2021.
CBDC and digital ID
Although the announcement that Turkey will couple its CBDC with a digital ID system has raised concerns with some privacy advocates, the idea is not new nor unique.
For example, Bank of England governor Andrew Bailey while giving evidence to a House of Lords committee that to access your CBDC account or holding, digital ID of some kind would be needed. However, he said it has yet to be determined whether it would be unique to a platform or 鈥渂roader in terms of your identity鈥.
In a 2020 , the Bank of England set out a model in which the bank鈥檚 core ledger would store pseudonymous accounts and balances, with each account in the core ledger linked to a payment interface provider, which knows the identity of each user and can conduct anti-money laundering checks. That way, the central bank would hold no data about any user.
A similar model has been studied in Sweden.
Similarly, the European Central Bank (ECB) is planning to apply an online third-party validated solution where payments will be carried out by third parties, including banks and payment companies.
The ECB that full anonymity 鈥渋s not a viable option from a public policy perspective鈥, but stressed that 鈥渁 digital euro would provide a level of privacy equal to that of current private sector digital solutions.鈥
