Turkey’s Central Bank progresses on digital lira, emphasizing interoperability, privacy, and exploring offline transactions in its latest report.
The Central Bank of the Republic of Turkey (CBRT) has made significant progress in the fintech domain by unveiling the evaluation report for the initial phase of its ambitious Central Bank Digital Currency (CBDC) initiative, the Digital Turkish Lira Project. Aimed at revolutionizing the financial landscape, this project marks a pivotal step towards the integration of digital currencies in Turkey’s economy. The report, initially released in Turkish and recently translated into English on February 19, offers a comprehensive overview of the project’s first phase, shedding light on the innovative approaches and technologies being explored.
Digital Turkish Lira
The project embarked on its journey in 2021, setting the stage for the introduction of the digital Turkish lira. Throughout 2022, the CBRT successfully executed its inaugural transactions, demonstrating the currency’s potential to transform digital payments. The development of the digital lira is centered around several key components: a digital identity system, digital currency mechanism, abstraction layer, service layer, and wallet functionality. This structure ensures modularity, facilitating seamless updates and modifications across the system.
Operating on the Digital Turkish Lira Collaboration Platform, this initiative is a collective effort involving the CBRT, the Scientific and Technological Research Council of Türkiye, and leading tech firms Aselsan and Havelsan. The digital lira will be an intermediated retail CBDC, with a separate stream focusing on wholesale payments. Its design emphasizes interoperability and aims to complement, rather than compete with, existing financial services.
One of the project’s standout features is its approach to programmable payments, prioritizing flexible and secure transactions over the concept of programmable money. This allows for the creation of contract templates that specify conditions related to credentials and payment methods, enabling public institutions and licensed entities to actively participate in the contract lifecycle.
Privacy and Innovation
Additionally, privacy considerations are paramount in the digital lira’s design, with self-sovereign identity playing a critical role in safeguarding user information. The upcoming second phase of the project promises to delve into smart payments and the intricacies of offline transactions, although the specific protocol for offline payments remains undecided. This phase will also tackle legal and economic aspects, aiming to integrate digital transactions into intermediaries’ mobile applications, although no specific timeline has been provided.
Concurrently, Turkey is striving to enhance its regulatory framework for cryptocurrencies, addressing the challenges posed by its current regulatory environment. Strengthening these regulations is crucial for Turkey’s efforts to improve its standing on the Financial Action Task Force’s gray list, underscoring the nation’s commitment to fostering a secure and innovative digital finance ecosystem.
Of course, concerns remain given the centralized nature of CBDCs. Crypto enthusiasts remain skeptical toward the introduction of such CBDCs.