Ukraine will launch digital hryvnia: what it is and how it works

In an interview with CoinDesk on February 16, Deputy Minister of Digital Transformation of Ukraine Alexander Bornyakov said that Ukraine’s own digital hryvnia may appear as early as the end of 2022 — early 2023.

He also said that in a few months the results of pilot projects with digital hryvnia, which are held in conjunction with the National Bank, will be known. They will be implemented on the blockchain Stellar, Ethereum and Near.

Ukraine is one of the leaders in the development of its own digital currencies issued by the Central Bank (Central Bank Digital Currency, CBDC). They are often compared to cryptocurrencies, but this is not quite correct. Together with the analysts from Currency.com we tried to find out what is the peculiarity of CBDCs, how they differ from cryptocurrencies and who else develops similar projects.

China is the head of everything

When it comes to digital currencies, China is often cited as a leader. And not without reason — the authorities of the country have already implemented a project to create a digital yuan and are beginning to actively implement it.

China tested its national digital currency back in July 2021. Then in the capital of Sichuan Province — Chengdu — between 100 thousand inhabitants distributed 12 million digital yuan (about $ 1.9 million). The selected participants in the lottery could spend the money to pay for public transportation and bicycle rentals. The experiment was a success.

The main difference of CBDC from cryptocurrencies is that the first are under the full control of the authorities of the issuing country. Cryptocurrencies offer users a fairly high level of freedom of use, as well as a large, albeit limited, anonymity.

We can say that China saw a trend — an increasing interest in fast and cheap digital money in the creation and maintenance. So the authorities decided to squeeze the most out of the situation and create their own digital currency, while focusing on making it as convenient for the government as possible.

Who else is in play?

China and Ukraine are not the only ones interested in creating their own digital currency. For example, Switzerland successfully tested its wholesale CBDC (a digital currency used in the financial sector) in January 2022. Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS took part in the experiment.

Even earlier, the Central Bank of France tested the use of CBDC in transactions with government bonds. The experiment confirmed that blockchain is suitable for CBDC trade accounting.

The desire to launch its own cryptocurrency by the end of this year was announced in mid-February by Jamaican Prime Minister Andrew Holness. The country’s central bank successfully completed a pilot project in this area in 2021.

Payment systems also got into the game. For example, in January it became known that Visa has signed a partnership agreement with the blockchain company ConsenSys. They will create a module that will help central banks and financial institutions integrate CBDC networks for easy use by end users.

Why is the issuing of digital hryvnia important for the cryptocurrency market?

Despite centralization, public blockchains — Ethereum, BNB Chain, Stellar, Near and others — are often used to create CBDCs. And this can directly affect both the value of cryptocurrencies associated with these ecosystems and the popularization of cryptocurrencies in general.

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Arsen Islamov
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