Estonia’s central bank has kicked off research into the suitability of its ‘e-government’ core technology for operating a central bank digital currency (CBDC).
Eesti Pank has launched what it describes as a ‘multi-year’ project to research how suitable the KSI Blockchain, a core technology of e-government in Estonia, could be 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 electronic identity and other e-government solutions 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 Estonia 13 years ago.
Aiming to contribute ‘meaningfully’ to Eurosystem
Estonia has been a member of the European Union (EU) since 2004 and adopted the euro in 2011, meaning that Eesti Pank joined the Eurosystem. This comprises the European Central Bank (ECB) and the national central banks of the countries that have adopted the euro (currently 19 EU member states).
Eesti Pank announced its digital currency research project, which is being run in collaboration with two tech companies, as the ECB presented a ‘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 potential ‘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,” said the central bank’s payment and settlement systems department head, Rainer Olt.
Olt said that Estonia had “unique know-how in running a digital government that prioritises security, privacy and efficiency” and this experience provided “good grounds for launching a project to explore the technological frontiers of digital money” alongside the two tech companies.
The two firms working with Eesti Pank are Guardtime, a company founded in Estonia 13 years ago and which is the government’s long-term blockchain partner, and The SW7 Group, a company headquartered in London.
Eesti Pank 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.
The research project will not make choices about the use of specific individual technologies.
The project is, Eesti Pank said, the first practical example of what it described as a ‘new strategic direction’ of looking for ways to co-operate with the private sector and research topics that will encourage the development of the country’s financial and payments markets.