The National Bank of Ukraine will conduct testing of the digital hryvnia, in which domestic financial institutions and their clients will be able to participate. “Apostrophe” figured out how digital money differs from regular money, whether Ukrainians really need e-hryvnia, what are its advantages and disadvantages.
The National Bank of Ukraine (NBU) announced the testing of the state digital currency - e-hryvnia - which is planned for this year. The regulator itself reports this.
It is known that the NBU has already sent out invitations to commercial banks to take part in this experiment.
The National Bank emphasizes that we are talking about open testing, that is, everyone will be able to take part in it - banks, non-bank financial institutions and their clients.
The NBU recalled that the first testing of the e-hryvnia took place back in 2018, but it took place in a closed environment - between employees of the National Bank itself and several companies that were involved in the experiment, and during which a very limited amount of digital hryvnia was put into circulation (approximately 5000 hryvnia).
The volume of e-hryvnia emission for the upcoming test is not yet known, since it will depend on the number of test participants.
Payment transactions with e-hryvnia will be tested on a single technological platform, the operator of which will be the NBU. “During testing, we plan to study the effectiveness of the selected technological platform and the ease of using e-hryvnia for payment transactions, its advantages in practice, which will help make a decision on the feasibility of its large-scale release in Ukraine,” said the director of the department of payment systems and innovative development of the National Bank Andrey Podderegin.
Not a crypto, but not a regular currency either
Digital currencies are often confused with cryptocurrencies, but they are not the same thing. Although they do have something in common, including the fact that both work on the blockchain.
“When it comes to Bitcoin or Ethereum (the most famous cryptocurrencies in the world are “Apostrophe”), new coins in the payment system are created as a reward for processing internal payments. But in the case of the state digital currency, the National Bank itself will process payment transactions,” Natalia Boyko, the founder of SpiceProp, told CO-CEO.
Another important question is why, in particular, Ukraine needs digital money at all, and how do they fundamentally differ from ordinary, so-called fiat money (those that are banknotes backed by a physical asset)?
In fact, there are not many differences, and usually users may simply not notice them, especially in a country like Ukraine, which, despite the war, remains one of the most advanced in the world in terms of digitalization (digitalization). This, in particular, was appreciated by Ukrainian refugees in many European countries, transactions in banks of which can be carried out within several days, while in Ukraine it takes only a few minutes, and sometimes even seconds.
“If the country has a modern payment system like in Ukraine, when payments arrive in 5-10 minutes, then for the consumer the difference between CBDC (digital currencies of central banks) and fiat national currency will be difficult to notice,” explained an economist, former member of the NBU Council Vitaly Shapran.
Users will be able to pay in e-hryvnia using so-called electronic wallets, which in Ukraine are legally equivalent to bank accounts (it is not yet clear whether electronic wallets will need to be opened in commercial banks or on the National Bank platform) through the corresponding applications on mobile phones.
Risks and benefits
So, perhaps our country doesn’t need digital money?
For now, this issue is debatable, and the NBU warns in advance that the decision on the advisability of issuing the e-hryvnia will be made based on the results of the announced testing “and will approach this issue in a balanced manner, taking into account, in particular, the potential impact of its introduction on financial system of the state."
This is all the more relevant because there are not many countries in the world that have introduced digital currencies in one form or another. According to Vitaly Shapran, to date, pilot projects have been launched by central banks in India, China, Nigeria, Uruguay and the Eastern Caribbean (we are talking about seven small countries in the Caribbean in which the fiat currency is the East Caribbean dollar - “Apostrophe”). “So far, none of the projects have achieved economic success,” the expert noted.
It is possible that this may be due to the fact that digital money tends to leave a so-called “digital trace”, that is, data about citizens and businesses will be at a glance for regulatory authorities. The National Bank emphasizes that the introduction of the e-hryvnia will contribute to an increase in the level of transparency of payments. This, of course, is good for preventing corruption, however, given Ukrainian realities, it can, on the contrary, strengthen it, since this situation creates potential ground for pressure on users from the very same regulatory authorities.
In any case, the benefits of using digital money should be obvious to citizens. “The best results are shown by those central banks that have offered favorable conditions for using digital currency. Where CBDC was analogous to cash in terms of transaction anonymity, the results were better,” says Vitaly Shapran.
There must be other incentives for potential users. “We need discounts on services, taxes, and utility bills,” explains Natalia Boyko.
In addition, an important advantage of digital money can be the low commission for settlements or its absence at all.
However, the commission is what banks, in particular, make money on, so they may not be interested in introducing the e-hryvnia. According to Natalia Boyko, the digital hryvnia, in principle, will make many of the functions of banks redundant, and therefore they may ignore the invitation of the National Bank to take part in testing.
So it is possible that the NBU’s experiment will be unsuccessful. “The National Bank can spend a lot of money on a pilot project, but not achieve success, as, for example, it was with the PROSTIR payment system, the costs of which were considerable, but the effect of the work is controversial,” says Vitaly Shapran.
Life online and offline
Thus, it is now very difficult to predict whether – and in what form – a digital currency will be introduced in Ukraine, since this will depend on many factors. However, we can say with confidence that if the advantages of the e-hryvnia and the absence of risks of its use are obvious, Ukrainians will willingly switch to payments with it.
Natalia Boyko is confident that the future lies with digital currencies. “Digitalization of the economy followed by the use of AI (artificial intelligence) technologies for a leap in efficiency is the next technological revolution, and digital money is the lubricant in the new technological system,” explains the expert.
Moreover, Ukraine, as noted above, is one of the world pioneers in the field of digitalization.
However, there is another very important point, which concerns the fact that during the testing of the e-hryvnia, the possibility of making payments with digital money offline will be checked. And if the experiment shows that such a possibility exists, it will be very useful, especially in a war, including a hybrid one, when due to enemy cyber attacks (and the actions of the Yemeni Houthis too) there are risks of stopping the functioning of the Internet and, as a result, cashless transactions. payments made online. This will also allow for calculations in case of blackouts.
