The National Bank of Ukraine, the country’s central bank, has been working on a pilot project to test the usefulness of a digital version of its currency, the Hryvnia. The bank announced today that it had completed the pilot and would be investigating further uses of the token.
While noting that the country is “ahead of world leaders,” the bank’s payment systems director Alexander Yablunivsky clarified that the country has not launched a cryptocurrency. Cryptonaughts will appreciate that he was very cognizant of the fact that a cryptocurrency is not an instrument issued by a central bank. According to a translation of the original news report:
We are not talking about cryptocurrency, we are talking about digital currency of the central bank. It can be implemented on both the centralized registry technology and the decentralized one. This is a completely separate issue, which follows from the target model chosen.
As we discussed when JP Morgan allegedly entered the crypto space with its “own coin,” there are properties that either disqualify or qualify a blockchain token as a cryptocurrency. JPM Coin failed all the important tests, and Yablunivsky understands that the Ukrainian national token will as well.
By definition, a bank must have more control over its issued currency than the traditional immutable ledger can offer. Many properties of blockchain are useful in traditional finance, but some are counterintuitive. A crypto must be immutable and censorship-resistant. It must be fungible anywhere. It isn’t subject to identity verification or monetary issuance policies.
Ukraine has been investigating the potential of blockchain technology since 2016. They’ve finally got a working product, but are not yet sure how they will use it. The primary use cases will be peer-to-peer payments and potentially international settlement.
As Yablunivsky correctly noted, his country is one of the few this advanced. That being the case, it will be some time before there will be instruments that make sense to work with other central banks. But the true believers among us believe there will come a day that the IMF issues and services loans on a distributed ledger, if not more.
One aspect of issuing a digital currency is their potential use on regulated exchanges. By using a blockchain token of any stripe, the potential for local Ukranian exchanges to have fiat on-and-off-ramps (which then opens them up to much of global finance) is even greater than the use cases for the host of stablecoins we’ve currently got.
The next news on this subject will be what the central bank decides to actually do. Will Ukranian bank accounts store cryptocurrencies and the e-Hryvnia alongside each other?
One aspect of blockchain that is indisputably superior to existing currency issuance methods is the tracking of counterfeit notes. Counterfeit bills are notorious in traditional fiat, giving rise to an entire industry of verification tools and law enforcement. Distributed ledgers make such things obsolete.