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CBDC: A potential cure for corruption in Indonesia?
Depending on how it is designed, the central bank can wield its planned "digital rupiah" CBDC as a powerful tool for combating corruption, but this requires a delicate balance between transparency, security and individual privacy.
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A visual representation of the cryptocurrency Bitcoin is seen in this picture taken on Feb. 6, 2018 at Bitcoin Change, a shop in Tel Aviv, Israel. (AFP/Jack Guez )
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central bank digital currency (CBDC) is a digital form of a nation's official currency, typically designed to serve as a secure, government-backed digital representation of physical money.
Unlike cryptocurrencies like Bitcoin, CBDCs are centralized and maintain a direct link to the country's monetary system, providing stability and trust. They offer a digitalized means of conducting financial transactions, enhancing transparency and offering new tools for managing monetary policy.
Bank Indonesia (BI) has tried to experiment with a CBDC called “digital rupiah” under Project Garuda. According to its white paper, the design objective encompasses providing a digital currency to serve as an additional monetary policy instrument and to support the digital economy (BI, 2022).
Meanwhile, an article by the Bank for International Settlements (BIS) has highlighted the multifaceted potential of CBDCs that extend far beyond traditional monetary functions, including combating corruption (BIS, 2021).
Corruption is a formidable challenge that plagues nations worldwide, obstructing economic progress, eroding public trust and diverting vital resources away from essential services. According to the Corruption Perception Index (CPI) published by Transparency International (2023), developing countries like Indonesia often struggle with corruption. One key issue is the difficulty countries face in tracing illegal financial transactions, which CBDCs have the potential to address.
Leveraging CBDCs opens doors to enhanced transparency in financial transactions, revolutionizing the ability of authorities to track fund movements and detect suspicious activities (Younas, 2020). Reports from authoritative sources like PriceWaterhouseCoopers (2019) state that CBDCs provide authorities with an unprecedented level of transaction traceability, which could curtail hidden transactions that are a hallmark of corrupt environments.
Moreover, blockchain technology, a design option for CBDCs, adds an additional layer of transparency. By establishing an immutable audit trail, blockchain technology can serve as a powerful tool against corruption.
