NBU does not give up attempts to launch e-hryvnia. What is important to know about this?

The first stage of the experiment to launch a digital hryvnia started back in 2018. Issued 5443 e-hryvnia. Their circulation was limited, as were the available operations (transfers between wallets, replenishing the balance of mobile phones, charity, exchange for non-cash funds). The results of the first stage are mixed. First of all, the regulator was faced with significant technical problems, and the complexity of some of them directly indicated the need for significant investments and time to modernize the payment infrastructure for this instrument. And if we take into account that the Ukrainian payment services market is developed, competitive and already has an established infrastructure, then the question of whether it is advisable to continue the experiment literally hung in the air.

However, the NBU decided to continue. The second stage of the experiment will begin in the second half of 2024 and will last six months. This time the NBU asks banks and their clients to join the pilot project. This is not a directive, but an invitation to participate.. Of course, banks, in turn, will only offer e-hryvnia to clients. The volume of the issue of this stage will become known after the NBU understands how many banks and clients have agreed to participate in the second stage. But mass use of e-hryvnia is still far away. The NBU clearly stated that they will definitely not distribute e-hryvnia to everyone, following the example of the Chinese Central Bank.. Now we are only talking about some expansion of the existing functionality (for example, testing offline payments), researching demand and, most importantly, determining the feasibility of continuing work on the launch of e-hryvnia. That is, about finding a final answer to the key question that arose after the first stage of the experiment.

The NBU already has some experience of competition with the private sector, and this experience does not inspire the regulator. Do you know what “PROSTIR” is Hardly. And this is a state payment system, which has been developed by the regulator for years and is largely ignored by the consumer, since there are faster, more convenient and understandable alternatives on the market. The experience of this competition tells the NBU that it first needs to decide whether there will be any demand for its developments at all.. The world has already seen a country that bet everything on crypto ten years ago and still hasn’t won anything.. This is Ecuador.

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The so-called Ecuadorian Bitcoin experiment started in 2014 with a total ban on all cryptocurrencies, except for the state-owned SDE crypt (Sistema de Dinero Electronico, “Electronic Money System”) pegged to the US dollar - the official currency of Ecuador since 2000. The expectations were quite ambitious, but the digital revolution did not happen. Neither businesses nor citizens wanted to use official crypto precisely because of distrust in the state, which would then control all their transactions. In order not to lose its reputation as a digital pioneer, Ecuador returned Bitcoin to official circulation. Things got better - commercial payments, money transfers appeared, including abroad, even ATMs that allow you to exchange dollars for bitcoins.

But not without problems. The main ones:.

Regulations written for traditional money are difficult to adapt to digital ones, so there are still a lot of gaps;

lack of effective tools to ensure macrostability, because they are all also written for traditional money;

The technological gap between large cities, where “everything is for Bitcoin,” and villages, where there is not even the Internet, has further exacerbated the overall economic inequality in the country.

Regulations written for traditional money are difficult to adapt to digital ones, so there are still a lot of gaps;

lack of effective tools to ensure macrostability, because they are all also written for traditional money;

The technological gap between large cities, where “everything is for Bitcoin,” and villages, where there is not even the Internet, has further exacerbated the overall economic inequality in the country.

Was this experiment successful Now, that is, in ten years, only 3% of Ecuadorians own cryptocurrency.

So do we need e-hryvnia

Very simplified, but all your non-cash transactions are already electronic money. The revolution took place a long time ago, unnoticed by the majority, and hardly anyone regrets it. And yet, blockchain technology has made its own adjustments. And when we now talk about digital currencies of central banks, we mean the use of this particular technology and the storage of e-money in the form of tokens, as in cryptocurrencies.

In 2023, central banks of 114 countries, representing 95% of global GDP, were at various stages of assessing the launch of a national digital currency. The European Central Bank began experiments in October last year. Brazil and India are also already in the process. The UK is preparing to start in 2025. The first major economy to issue its own digital currency was China - the first test stages there began in 2019, and public tests started back in 2021. In 2023, in Jiangsu province, all civil servants received salaries in digital yuan.. But China is still in the experimental phase.

In theory, if major economies complete their experiments and implement digital currencies, a new basic infrastructure for transnational transactions could be created for them in the world. But this is so difficult that it will take decades even at the current rate of progress.. After all, both for launch and for further coordination with other countries, the harmonization of a huge array of regulations is required, from standards and technical characteristics to regulatory and legal details of circulation. Essentially, global finance must start with a clean slate.

And first, you will need to find an answer to the key question that arises every time when it comes to state digital currencies - the control of all operations by the state. It is no coincidence that China is in the lead - they simply decided not to answer this question. Other countries are still searching.

Everyone understands that with the highest degree of centralization (and state e-currencies are exactly like that), the first thing that needs to be done is to ensure financial confidentiality and protect citizens from possible abuses by the state. Of course, under certain circumstances, the law enforcement system can still gain access to your transactions or seize your accounts, but there are no reliable safeguards that would operate in the event of complete digitalization of the monetary system. Last year's heated debate in the British Parliament showed that they will not be found quickly. And the Swiss, frightened by potential changes, even proposed enshrining in the Constitution the right to access to cash.

Therefore, in most democratic countries, it is the legal principles of the functioning of e-currencies that will be markers of the success of this endeavor.. Unfortunately, in Ukraine we do not even see an expert discussion of these problems. Of course, our experiments with e-hryvnia are very modest and slow, but the experience of other countries suggests that it is time to prepare legal regulations, without avoiding public discussions on this topic.

So, purely theoretically, e-hryvnia, or rather, the work on its launch, makes sense. Even in order not to widen the technological gap with leading economies. Digitalization of economies with the further use of artificial intelligence technologies for a leap in efficiency is our next technological revolution. In importance it is comparable to the first and second industrial. Countries that were the first to implement them received enormous development benefits. But do we need e-hryvnia in circulation now And, as we see, the NBU itself is looking for an answer to it. We suspect that he even knows him.

E-hryvnia, like any digital currency, makes a significant number of functions of commercial banks redundant. And these commissions are an important source of profit in the banking business.. So commercial banks (as well as the regulator, I think) understand perfectly well that the system itself will resist the too hasty digitalization of everything. In addition, the previous stage of the experiment showed a significant array of technical problems that will definitely not improve the attitude of clients towards banks, which, in fact, imposed a non-working service on them. Customer loyalty in banking is perhaps even more important than commissions. It is unlikely that it will come to sabotage, but we will not see Stakhanov’s pace of carrying out the second stage of the experiment.