The announcement by Central Bank chief Naci Agbal puts Turkey on the fast track to adopting a central bank digital currency (CBDC).
Turkey will embark on the pilot phase of a sovereign-backed digital currency next year, according to a statement made by Central Bank President Naci Agbal in parliament on Friday.
“There is an R&D project initiated on digital money. Currently the conceptual phase of this project has been completed,” Agbal said while answering questions on the activities of the Central Bank at the TBMM Plan and Budget Committee.
“We aim to start pilot tests in the second half of 2021.”
Agbal’s comments on Turkey’s digital currency ambitions shouldn’t come as a surprise: Turkey has been considering a national cryptocurrency and researching a possible central bank digital currency (CBDC) since 2019.
In its 2019-2023 economic roadmap published last July, the government included the adoption of “Blockchain-based digital central bank money”.
The rollout of a CBDC comes after President Recep Erdogan previously announced that trials for a digital currency system would be finalised by the end of 2020. Within the trials, the government intends to develop a software platform for instant payments based on the “digital lira."
Development on a CBDC comes as the country’s central bank grapples with high inflation and rising consumer prices. Appointed as central bank head last month, Agbal is determined to lower the inflation rate to meet the annual target of 9.4 percent.
The Turkish public is very much open to the idea of cryptocurrencies, with 20 percent owning at least one form of digital currency at some point in their life. Nearly half of Turks have plans to use cryptocurrency in the event paper money declines over time.
Social distancing measures and concerns around cash payments during the Covid-19 pandemic have only accelerated the shift towards digital payments and government payment schemes, providing further impetus for CBCD implementation.
Up until now, Bank for International Settlements (BIS) had not recorded Turkey in its active database of CBDC projects.
According to BIS, 80 percent of central banks are engaging in research, experimentation or development of CBDCs – a few of which have progressed to the soft launch phase, including China, Sweden and the Bahamas.
Sovereign-backed digital currencies on the rise
With the growing popularity of Bitcoin and the distributed ledger technology (DLT) that underpin cryptocurrencies, central banks around the world have been researching the concept and design of digital currencies for several years.
As early as 2014, the Central Bank of Ecuador launched a project called “Dinero electronico” to allow individuals to make mobile payments through a central bank-operated system, but it failed to gain traction and was discontinued in 2016.
From 2016 onward, a number of central banks launched digital currency research projects.
The first publicly announced work on retail CBDCs was conducted by the Swedish Riksbank, and eventually its “e-krona” project was developed to the point where the bank announced a pilot with Accenture this February.
And in a landmark move, the Central Bank of the Bahamas officially launched its digital “sand dollar” in October, which is the first CBDC to be fully deployed in a country.
The most advanced CBDC project to date is being conducted by the People’s Bank of China. It's Digital Currency Electronic Payment (DC/EP) or “digital yuan” began trials in four Chinese cities in April.
The US, UK, EU and Russia are also looking into their respective CBDC pilots.