Not cryptocurrency, but e-hryvnia: What is it, when it to appear and what for

Author

Valery Moiseev

On the Internet and in some media, one can read that "the NBU plans to issue its own cryptocurrency." In fact, this is not the case. The National Bank is exploring the feasibility of issuing e-hryvnia that belongs to the vast category of electronic money. Such instruments are now increasingly called the digital currency issued by the central bank (CBDC—Central Bank Digital Currency).

What are the electronic money features

CBDC and cryptocurrency are electronic money. Their main difference is that CBDC is not a new form of currency, but a new form of existing money (along with cash and non-cash). It is issued only in exchange for the same amount of real money.

E-money does not have a physical embodiment, it is just a set of numbers (code). Not only the central banks and ordinary banks (with the permission of the central bank) issue such money, but the payment systems as well. Therefore, they can be both public and private. Examples of the latter are PayPal, Visa Cash, WebMoney, and others. Often, non-state payment systems peg their electronic money to national or foreign currencies, but the governments do not ensure the reliability or liquidity of private money in any way.

What electronic money is for

Electronic money has its own denomination, like any other money. It can be acquired if earned or exchanged for national currencies.

This money can be used to pay for various goods or services on the Internet. There are options when one can pay with it offline, in much the same way as with a bank card.

It is believed that electronic money is especially convenient for making small payments, since settlements are performed quickly with minimal additional costs.

The states are interested in electronic money, among other things, because all the payments they make are "personalized", that is, it is known who paid whom.

What is happening with e-hryvnia project

In September 2021, the National Bank launched an e-hryvnia project whereby, together with the Ministry of Digital Transformation and other government agencies, the concept of creating its own digital money is being developed. Andriy Poddyerogin, Director of the Payment Systems and Innovations Department of the NBU, revealed in an interview.

The goal of the project is to determine the need for a large-scale issuance of the hryvnia in digital form, to develop options for its use, optimal characteristics, design, and architecture of the e-hryvnia, to examine its impact on monetary policy and financial stability.

The technological solution has not been chosen yet. According to the plan, a pilot project is to be implemented in 2023. The final decision on the issuance will be made in 2024.

Currently, the NBU sees three scenarios for using the e-hryvnia:

Digital retail currency.
Digital currency for operations on virtual asset turnover.
CBDC for cross-border payments.

Currently, the Ministry of Digital Transformation, TAScombank, as well as companies Stellar and Bitt are experimenting with a pseudo e-hryvnia. They are testing the distributed ledger technology for issuing electronic money and examining its programmability. "Electronic money is an obligation of their issuer, in this case—TAScombank. They are accepted exclusively in the network of clients who have concluded relevant agreements with the bank. E-hryvnia is an obligation of the NBU." Poddyerogin explained. "The results of this research may be useful in our work to create the e-hryvnia."

How CBDCs are circulated in the world

China, the world's second largest economy, will publicly present its digital currency, dubbed the e-CNY (electronic yuan), for the first time during the Beijing Winter Olympics this February. The pilot version of the digital yuan wallet program has been available for download in China since January 4.

The Central Bank of India will issue a digital rupee in the 2022-2023 financial year that will begin on April 1.

The Bank of Russia will issue a prototype of the national digital currency in early 2023. During 2022, the regulator will test the digital ruble and then make a final decision on issuance.

The US Federal Reserve System that performs the functions of the American Central Bank published a report on digital currency on January 20. While the decision to issue a digital dollar has not been made, the regulator is considering its pros and cons and called on the public to express their opinion on the project within 120 days.