Central Bank of Turkey to test digital lira on new platform

The Turkish central bank has established a new platform to expand research into the potential benefits of introducing a digital version of the Turkish lira.

The digital lira project, which started with the completion of the proof-of-concept phase, now moves on to the next stage with the participation of technology stakeholders.

On Wednesday, the Central Bank of the Republic of Turkey (CBRT) said it secured agreements with defence and technology firms Aselsan, Havelsan, and the Scientific and Technological Research Council of Turkey (TUBITAK) to cooperate for research and development of the digital currency.

The CBRT stated that it “continues to research the potential benefits of introducing a digital Turkish lira to complement the existing payments infrastructure.”

For the first phase, the bank will create a prototype “Digital Turkish Lira Network” and conduct limited, closed-circuit tests with the assistance of its new technology partners.

“Based on the results of those tests, the CBRT will unveil advanced phases of the pilot study that will reflect a broader participation,” the regulator said.

“The CBRT also plans to carry out tests that may diversify the coverage of the Digital Turkish Lira R&D Project into areas such as blockchain technology, the use of distributed ledgers in payment systems, and integration with instant payment systems.”

The monetary authority said the results of the first phase will be announced in 2022 after the tests are completed.

“After capacity measurements of different technological alternatives are completed and the architectural setups are finalised, it will be decided whether the existing technologies can meet the economic, legal and financial requirements of the digital Turkish lira.”

The rise of CBDCs

CBDCs are the digital form of fiat money, giving holders a direct claim on the central bank and allowing them to make instant electronic payments. CBDCs differ from digital money like cryptocurrencies, which are private and decentralised.

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.

Turkey revealed its intentions to explore a central bank digital currency (CBDC) in 2019, after it was mentioned in President Recep Tayyip Erdogan’s Annual Presidential Program.

According to the Bank of International Settlements (BIS), 80 percent of central banks around the world are engaging in research, experimentation or development of CBDCs, with 40 percent already testing pilot programs.

China’s digital yuan trials are currently at the most advanced stage of any CBDC project to date. The US announced a series of private sector-led pilot programmes in May, while India and Nigeria announced in July their intentions to launch pilots in the near future.