Digital Turkish Lira

Central Bank Digital Currency and Cryptocurrencies: Conceptual and Legal Distinctions

More than 130 country digital money central banks are actively pursuing the development of central bank digital currencies. Center According to data from the Atlantic Council, a central institution, over 130 countries representing 98 percent of the global economy are actively engaged in central bank digital currency initiatives. It is noteworthy that while in 2020 only 35 countries were recorded as evaluating central bank digital currencies, fast the number has since grown significantly. May Of the countries involved in central bank digital currency research, 64 are currently in one of three stages: development, pilot, or demonstration.

Today, banknotes issued by central banks and used in daily life are produced from materials such as cotton, linen, paper, or polymer like other substances. Although these physical currency units are tangible, they play no meaningful role within the digital economy. In areas such as online shopping, digital payments, and electronic trade, traditional banknotes have become functionally obsolete and are not used as a medium in digital environments. This situation necessitates either transforming banknotes into new digital formats or developing alternative payment methods such as credit cards and digital wallets.

Central banks are conducting intensive research and development to enable money to be used more effectively and efficiently in the digital world. These efforts are particularly evident in the processes of electronic and digital transformation of payment systems. Digitalization, central bank digital currency holds the potential to fundamentally transformation promise both wholesale and retail payment systems and could eliminate the traditional distinction between the two. One of the most important steps in this transformation is the Central Bank Digital Currency (CBDC), a concept representing the digital version of a country’s official currency.

Central Bank Digital Currency must not be confused with cryptocurrencies. Digital currency is not a cryptographic entity; rather, it has a legal foundation. Economically, digital currency is the digital counterpart of a country’s physical banknotes. Legally, it is a recognized medium of exchange supported by national sovereignty and accepted by the general public. Therefore, a clear distinction must be drawn between digital currency and cryptocurrencies, both economically and legally. While cryptocurrencies possess a decentralized and speculative structure, digital currency is a tool designed under state control and aligned with the needs of national economies. In this context, digital currency will play a significant role in the future of the financial system and contribute to making payment systems faster, safer, and more accessible. However, for this transformation to succeed, both technological infrastructure must be strengthened and a legal and economic framework must be established in a coherent manner. Digital currency is not merely a technological innovation; it is a strategic step that will shape the future of economic systems.

History of the Digital Turkish Lira

•2020: Research and development work for the Digital Turkish Lira was initiated. This Turkish enabled the exploration of the project’s core concepts and the design of its technological infrastructure.

•2021: Proof-of-concept studies were completed and the feasibility of the Digital Turkish Lira was verified. Additionally, technology partners were identified and a collaboration platform was established.

•2022: Phase-1 work on the project began. During this stage, various architectural models were tested and initial practical trials were conducted.

•2023: Phase-1 work was completed, marking a significant dunum milestone with the successful conclusion of the first pilot tests.

1. Central Bank Digital Currency Requirements

The Central Bank of the Republic of Türkiye (TCMB) is taking significant steps regarding digital currency to shape the future of the financial system. These efforts are progressing in alignment with global trends as well as Türkiye’s unique economic and social dynamics. Digital currency is viewed not merely as a technological innovation but as a strategic vehicle with the potential to expand financial access, modernize payment systems, and strengthen economic independence. World Globally, digital currency projects vary according to the priorities of different countries. While some nations aim to reduce cash usage to make their financial systems more transparent and efficient, others invest in this area to gain a competitive edge in global payment systems. The TCMB, however, views this process as a means to simultaneously address local needs and strengthen Türkiye’s position within the global financial system. Within this framework, digital currency initiatives encompass a broad infrastructure that benefits not only individual users but also financial institutions.

On a global scale, particularly among G20 countries, there is a growing consensus to make cross-border payments faster and less costly. In line with this objective, institutions such as the Bank for International Settlements (BIS) and the Financial Stability Board (FSB) are conducting various projects to develop innovative solutions using digital currency and blockchain technologies. These initiatives carry significant potential to facilitate financial transactions between countries and make global trade more fluid. The TCMB closely monitors the impact of digitalization on the financial system and assumes a leading role in this domain. The internet and digital technologies are now used not only for information sharing but also for value transfer and payment systems. In light of these developments, the widespread adoption of digital currency could bring about a fundamental transformation of the financial system. The opportunities this transformation can offer can be summarized as follows:

1. Expanding Financial Access: Digital currency can facilitate the inclusion of individuals without or with limited access to banking services into the financial system. This can significantly enhance financial inclusion, particularly in rural areas and among low-income groups.
2. Efficiency in Payment Systems: Digital currency can reduce transaction times and lower costs, especially in cross-border payments. This enables faster and cheaper payment solutions for both individuals and businesses, thereby facilitating economic activity.
3. Supporting the Transition to the Digital Economy: Digital currency can become one of the foundational components of the digital economy. By offering safer, faster, and more flexible payment methods for businesses and consumers, it can accelerate the process of digital transformation.
4. Economic Independence and Control Over Payment Systems: Digital currency can reduce countries’ dependence on external payment systems and strengthen their economic independence. This represents a significant advantage, particularly in the face of uncertainties within the global financial system.
5. Continuous Payment Solutions During Crises and Disasters: Under the Digital Turkish Lira project, the TCMB is developing solutions to ensure uninterrupted operation of payment systems even during disasters or crises. Designed with both online and offline usage options, digital currency will remain accessible and usable under all conditions, providing an infrastructure that ensures continuity of economic activity even in extraordinary circumstances.

The TCMB’s digital currency initiatives represent a crucial step toward a more just, accessible, and efficient financial system. This process will contribute to the transformation of the financial system at both local and global levels and reveal Türkiye’s leadership potential in this field.

2. Central Bank Digital Currency Requirements

Transaction Capacity: The system must provide sufficient capacity to handle daily transaction volumes in real time.

User Experience: End users must be able to use the system securely and easily.

Scalability: During periods of high demand, the system must meet requests without compromising performance.

Security: The system must be of high quality to withstand attacks from both internal and external sources.

Resilience and Availability: The system must be robust against failures and continuously accessible.

Convertibility: The system must ensure continuous convertibility between the digital Turkish lira and its other forms.

Privacy: Users’ digital privacy must be protected, and financial transaction privacy must be maximized. Personal data should only be shared with parties defined by legal frameworks and only to the extent necessary.

Interoperability: The system must be designed to operate seamlessly with existing and future components of the digital ecosystem.

Do No Harm: The system must not cause harm to economic and financial processes. It must not aim to displace existing financial products and services.

3. Future Phases

Work on the final architecture and design of the Digital Turkish Lira is ongoing. Evaluations of potential design options and their ability to meet the economic, legal, and financial requirements of the Digital Turkish Lira are still in progress. A decision on circulation will be made based on the outcomes of these evaluations.