The Central Bank of the Republic of Turkey (CBRT) has recently published an English translation of its report assessing the initial stage of the Central Bank Digital Turkish Lira Research and Development (R&D) Project, which aims to establish a central bank digital currency (CBDC). While the report was originally released in Turkish last year, it became available in English on February 19th.
During the first phase of the project, various aspects were explored, including the digital identity system, digital currency system, abstraction layer, service layer, and wallet. The abstraction layer was developed to support the system’s modularity. This initial phase of the project commenced in 2021, and in 2022, the CBRT conducted its first trial transactions using the digital Turkish lira.
One significant characteristic of the system is that each component operates independently, allowing for seamless replacement if necessary. The CBRT utilizes the Digital Turkish Lira Collaboration Platform, which is jointly managed with the Scientific and Technological Research Council of Türkiye, as well as the Aselsan and Havelsan companies.
The digital Turkish lira was specifically designed as a retail CBDC with intermediaries. While wholesale payments were examined separately, the Turkish CBDC aims to achieve a high level of interoperability and complementarity. The CBRT expressed a preference for programmable payments over programmable money, highlighting the creation of contract templates that include conditions related to credentials and payment interfaces. Additionally, the CBRT stated that public institutions and licensed actors would be involved in the development, approval, deployment, presentation, updating, and deactivation of contracts. The inclusion of self-sovereign identity is crucial to ensure privacy protection.
In the upcoming second phase of the project, the focus will be on smart payments and offline payments. The selection of the protocol for offline payments has not yet been determined. Legal and economic considerations will also be addressed. Digital transactions will be integrated into mobile apps of intermediaries. However, no specific timeline has been provided for the second phase.
Turkey is concurrently working on establishing a regulatory framework for cryptocurrencies. The country’s inadequate crypto regulation is reportedly the reason for its inclusion on the Financial Action Task Force’s gray list.
In conclusion, the CBRT’s report on the Central Bank Digital Turkish Lira R&D Project provides valuable insights into the development of a CBDC in Turkey. The project’s first phase has successfully explored various components, and the upcoming second phase will further delve into smart and offline payments. The translation of the report into English allows for wider accessibility and understanding of the project’s progress.