The Central Bank of the Republic of Turkey (CBRT) has published an English version of its report assessing the initial stage of its Central Bank Digital Turkish Lira Research and Development (R&D) Project, aimed at developing a central bank digital currency (CBDC). While the report was originally released in Turkish last year, it has now been made available in English translation as of February 19.
The first phase of the project focused on the digital identity system, digital currency system, abstraction layer, service layer, and wallet. The abstraction layer enables the system to be modular. It commenced in 2021, and in 2022, the CBRT conducted its first trial transactions using the digital Turkish lira.
Each component of the system is independent of the others, allowing for easy substitution. The system operates on the Digital Turkish Lira Collaboration Platform, which is managed by the CBRT in collaboration with the Scientific and Technological Research Council of Türkiye, as well as the Aselsan and Havelsan companies.
The digital Turkish lira was designed as a mediated retail CBDC, with wholesale payments being explored 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, allowing for the creation of contract templates with conditions on credentials and payment interfaces. It stated that “public institutions and different licensed actors will be able to take part in the development, approval, deployment, presentation, updating, and deactivation of contracts.” The inclusion of self-sovereign identity is a crucial aspect of privacy provisions.
In the next phase of the project, Phase II, smart payments and offline payments will be examined. The protocol for offline payments has yet to be determined, and legal and economic considerations will also be addressed. Digital transactions will be integrated into mobile applications of intermediaries. No timeline has been provided for the second phase.
Turkey is also actively working on establishing a regulatory framework for cryptocurrencies. The country’s inadequate crypto regulation is reportedly the reason why it remains on the gray list of the Financial Action Task Force.
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