Despite undergoing extensive testing and research, the probability of a central bank digital currency (CBDC) still causes jitters among most of the bankers in Ukraine. The National Bank of Ukraine (NBU) presented the detailed results of testing its CBDC project as a February 21 conference in Kyiv.
The project is dubbed the e-hryvnia, and the central bank noted that it is continuing to look into issuing its CBDC. Nevertheless, the central bank is still worried about such a currency’s effect on the financial stability of the country. It also considers a possible threat that such a currency can pose to the traditional banking system. An official announcement by the NBU explains:
“The banking system may cease to be a major financial intermediary if the majority of the population switches to using the central bank’s digital currency instead of cash and bank accounts. On the one hand, the level of inflation in the country will not be significantly affected, as digital currencies will be issued by central banks, which will control this process.”
Supposed Benefits
Simultaneously, the NBU noted that any form of CBDC has the potential to strengthen and enhance public confidence in the central bank and all its financial services. The bank also went ahead to list significant benefits like convenience, reliability, and the opportunity to tackle the ‘shadow economy.’ The announcement further reads:
“Unlike bank accounts, central bank money is entirely risk-free and 100% guaranteed by the state. In other words, it is not only convenient but also reliable. In addition, digital currency can help reduce the amount of paper money in circulation. For many countries, this is an urgent task, since the shadow economy is often ‘fed’ with paper money.”
While there are several potential benefits related to the e-hryvnia, the National Bank of Ukraine does not seem to be prioritizing its development currently. Jacob Smol, the bank’s governor, concluded by saying that the authority will return to the e-hryvnia question when the bank is fully convinced that such projects do not have any threats to financial stability. The official then tweeted:
“We’ve completed the pilot project, but we continue to look into the chance of issuing the e-hryvnia. We’ll return to this matter when we are convinced that not only is it technologically feasible, but also that it will not interfere with the price and financial stability.”
Ukraine’s Central Bank issued A Mere $200 Within the Test
Once the National Bank of Ukraine started exploring the possibility of issuing a digital currency back in 2016, it completed a pilot for the e-hryvnia project late last year. According to the official NBU announcement, the central bank issued a “very limited number of e-hryvnias” within the pilot. That translates to just over 5,000 e-hryvnias that is worth almost $200 currently.
The deputy head of NBU’s payment networks and innovative growth department, Olga Vasileva, outlined that e-hryvnia will be just a digital alternative to cash. The executive also said that a CBDC like the e-hryvnia is mainly interesting for a regular user because of the low cost and speed of financial transactions.
Recent reports revealed that Ukranian crypto exchange Kuna released a stablecoin that is pegged to the Ukrainian hryvnia. Michael Chobanian, the Kuna founder, said that the e-hryvnia project had not got much further than research.
Sarah John, the Bank of England chief cashier on February 22, said that it is quite crucial for central banks around the world to consider CBDCs as a response to major tech companies’ efforts to create stablecoins.
