E-Hryvnia as a future of Ukrainian payment infrastructure
E-Hryvnia as a future of Ukrainian payment infrastructure
The economic safety of a state is an essential factor in a country’s stable functioning. Especially today, with the war in Ukraine, the government must take all measures to resist the enemy on all fronts, including economics.
Waging its hybrid war against Ukraine, the enemy strives to damage its economic and financial sector in any way. Therefore, today we must already work on the modernization of Ukrainian payment infrastructure and digitalization of its economics for complex support of its banking system’s transparency. The relevant options appear in a draft concept “E-hryvnia”. On 28.11.2022, the National Bank of Ukraine represented it to the participants of the market of payments and virtual assets [1], with its pilot project launched in 2018 [2].
What is “E-hryvnia”? “E-hryvnia” is a digital form of a Ukrainian monetary unit intended to work on a basement of blockchain technology and to be a direct liability of the central bank. Actually, according to par.96, part 1 article 1 of the Law of Ukraine “On Payment Services”, digital money of the NBU is a digital form of the Ukrainian monetary unit, and NBU is its component [3]. In other words, having implemented this concept, Ukraine shall have a new form of money – digital NBU money. Today, our country has two of them – cash and cashless.
It is important that a final edition of the project of the “E-hryvnia” concept is still expecting approval (nowadays, the NBU is working on the project together with state authorities and players in the markets of payments and virtual assets), so it could be amended and altered in the future.
According to public information, Ukrainians will have their digital money available 24/7. The funds will remain in specific digital wallets. I think it could be helpful to integrate it with the “Diia” application because this software has powerful potential. The Ministry of Digital Transformation of Ukraine notes that users will make settlements with each other quickly [4], as fast as regular P2P transactions we do almost daily. It could be helpful for payments between legal entities.
It will be enough for a user to scan a respective QR code to pay for services or goods.
Another benefit of integrating “E-hryvnia” with the “Diia” is that the last mentioned connects to many registers. In the future, this will help to automate tax calculations and others. Since the settlements shall take place on the NBU servers, we will be able to omit intermediary banks and thus reduce bank interests associated with such transactions.
In addition to quickness and low bank interest, the benefits include transparency and a high level of protection of the “E-hryvnia”. First, the users can be sure of their money safety. The National Bank of Ukraine can’t become bankrupt, it is impossible. Second, the Regulator will be interested in the maximum possible transparency of the settlements.
Each unit of the digital currency shall have its unique identifier (similar to a serial number of a banknote) + users’ wallets shall have their unique numbers. This uniqueness shall promote effective control of the payments and increase the efficiency of preventing money laundering. Transparency of the transactions shall minimize avoiding taxation and enable tracking of how state funds are used.
Today, the Regulator is considering and processing three possible variants of the use of the “E–hryvnia”, namely:
“E-hryvnia” for retail cashless payments with an option of “programmable” money (target social payments, smart contract technologies);
“E-hryvnia” for the sphere relating to the virtual assets flow (for example, for the exchange, secure the issue, and other transactions with virtual assets);
“E-hryvnia” to ensure an option for international payments.
“E-hryvnia” could hardly displace cash significantly in the nearest future and reduce its turnover in the country. However, after successful implementation and the involvement of many new users, it can do so in the future. Besides, the less the share of cash is, the less money the state spends on its production.
State regulation is another important factor that will directly influence the demand for “E-hryvnia”. The National Bank of Ukraine has to find a reasonable and well-balanced approach here, not to overtight the nuts but to support de-regulation.
Considering the above, I think that “E-hryvnia” has potential! The most important is to create a reliable digital infrastructure to be harmonically implemented into the Ukrainian financial system. The NBU must be careful not to overplay its hand. A step-by-step approach to launching digital money, consolidation and cooperation with all market players; a relevant regulation of the respective processes, reliable digital infrastructure – such are the keys to the success of the “E-hryvnia”. In my opinion, in these conditions “E-hryvnia” has a chance to become a really comfortable, available, transparent, and safe monetary unit for Ukrainians!
The National bank represents a draft concept of E-hryvnia to the players of payment and virtual assets markets (Digital resource) // web-page of the National bank of Ukraine – access: https://bank.gov.ua/ua/news/all/natsionalniy-bank-predstaviv-uchasnikam-platijnogo-rinku-ta-rinku-virtualnih-aktiviv–proyekt-kontseptsiyi-e-grivni
The Ministry of digital transformation with its partners launches a pilot project to support the E–hryvnia development (Digital resource) //web page of the Ministry of digital transformation of Ukraine. – Access: https://thedigital.gov.ua/news/zagolovok-mintsifra-z-partnerami-zapuskayut-pilotniy-proekt-yakiy-dopomozhe-v-rozrobtsi-e-grivni
Law of Ukraine “On Payment Resources” (Digital resource) // web–page of the Verkhovna Rada of Ukraine. – Access: https://zakon.rada.gov.ua/laws/show/1591-20
Executive summary of the results of the “E–hryvnia” pilot project //website of the National Bank of Ukraine. – Access https://bank.gov.ua/admin_uploads/article/Analitichna_zapiska_E-grivnya.pdf?v=4