Turkey To Launch Digital Lira In 2023 Linked To eID

November 1, 2022
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Turkey has announced plans to introduce a central bank digital currency by next year, which will combine with a digital identity system.

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 presidential annual programme for 2023, which laid out plans to issue a CBDC next year.

According to next year’s 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 “blockchain-based central bank digital currency into practice”.

In the first phase, the central bank will focus on testing the digital fiat in payments. Subsequently, the central bank will study the “integration of digital Turkish lira systems with digital identity and FAST systems”, the document says. FAST is Turkey’s 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 estimating 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’s 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 noted 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 “broader in terms of your identity”.

In a 2020 discussion paper, the Bank of England set out a model in which the bank’s 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 stated that full anonymity “is not a viable option from a public policy perspective”, but stressed that “a digital euro would provide a level of privacy equal to that of current private sector digital solutions.“

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