Tallinn, the Estonian capital: The project will also explore new payment solutions that could be made possible using digital ID. (Photo by vikucka via Pixabay).
Estonia has kicked off research into the suitability of its e-government technology for operating a central bank digital currency (CBDC).
The country’s central bank, Eesti Pank, has launched what it describes as a ‘multi-year’ project to determine how suitable the KSI Blockchain, a core technology of e-government in Estonia, is for supporting the digital money infrastructure of a central bank.
The project will also examine new payment solutions that could be made possible by using digital ID and other e-government technologies in the Baltic nation, which is widely seen as a global leader in digital government.
Estonia, whose population is about 1.3 million, promotes itself as being the first country in the world to use blockchain – a digital ledger of transactions – at a national level. KSI (which stands for ‘Keyless Signatures Infrastructure’) is a blockchain technology created in the country 13 years ago.
Eesti Pank’s payment and settlement systems department head, Rainer Olt, said that Estonia had “unique know-how in running a digital government that prioritises security, privacy and efficiency” and that this experience provided “good grounds for launching a project to explore the technological frontiers of digital money”.
The bank will be working with two private sector tech firms on the project: Estonian company Guardtime, which is the government’s long-term blockchain partner; and London-based The SW7 Group.
Exploring ‘new direction’
The research will run in multiple phases and is initially planned to last for about two years. The first phase will determine how to design a “scalable, practically useable and cryptographically secure” platform to meet the needs of a CBDC, including stringent requirements for speed, security, privacy and resilience.
According to Eesti Pank, the project is the first practical example of what it described as a “new strategic direction” in which it will look for ways to co-operate with the private sector on research topics that will encourage the development of the country’s financial and payments markets.
Contribute ‘meaningfully’ to Eurosystem
News of Eesti Pank’s digital currency research project broke as the European Central Bank (ECB) presented its ‘Report on a digital euro’. The ECB said a public consultation on a potential digital euro will launch on 12 October and that it will decide whether to progress a digital euro project by mid-2021.
“Eesti Pank, as a small central bank, chooses carefully which Eurosystem development projects we are able to contribute to meaningfully,” Olt said.