CBDC Initiative: National Bank of Georgia

“For the first time in history, regulators are themselves the owners of the process of innovation,” Varlam Ebanoidze, head of fintech and suptech at the National Bank of Georgia (NBG), tells Central Banking. The central bank has adopted a “learning-by-doing” approach as it prepares for its Digital Lari pilot.

The NBG sees central bank digital currencies (CBDCs) as more than just another means of payment. In its CBDC ecosystem, the central bank is working towards a platform that offers smart contract and programmable token features, aimed at encouraging innovation in the financial sector. “We are doing this based on a two-tier architecture, where banks and fintechs in the regular value chain are invited,” says Ebanoidze. “We think CBDC is part of the open finance process.”

“We want to enable fintech players worldwide to have the ability to use the new tools only a CBDC can provide,” says Giorgi Kireulishvili, chief fintech and suptech specialist at the NBG. The central bank is also working on an instant payments system, which will be available at the end of 2023.

NBG research looked at the problems a CBDC could solve first. “This differentiates us from other central banks’ overall objectives, when we are stating why we are why we are developing a CBDC,” says Ebanoidze. “We have these kinds of answers. We did bottom-up contextualisation.”

One use case for CBDCs in Georgia is agricultural insurance. “You need someone who writes the interface for the smart contracts of a small farmer in eastern Georgia who owns a winery. You need a liquidity provider. This could be an insurance company, a personal investor or retail investor,” says Ebanoidze. “The whole value chain is redefined.”

Another use case the central bank has identified is the automation of the real estate acquisition process using CBDC smart contracts. By integrating the Oracle Real Estate Registry Database, under a joint programme between the NBG and the National Agency of Public Registry, the central bank will test real estate acquisition using automated settlement with CBDC.

“We are trying to design our CBDC so most of the governmental services can be moved into the digital world on one platform,” says Kireulishvili. To achieve this, the central bank has also been proactive by working with other institutions, such as the Ministry of Economy and Sustainable Development of Georgia.

The NBG also reached out to central banks that had public CBDC announcements and trials, as well as some of the technology providers focusing on CBDC infrastructure, “to figure out what we can achieve today and hope for tomorrow”, says Kireulishvili.

In preparing for its pilot, the central bank is continuing its international approach. “We are forming a committee that will include external experts – local and global, with relevant experience – who will help choose the right partner,” says Kireulishvili. “We are in the process of actually forming a so-called CBDC community because we have a very open-source approach,” he adds. “We understand that it is not just the central bank’s project. It goes well beyond the central bank’s mandate.”

The central bank is also mindful of the potential impact of other nations developing CBDC. “We want to be early in the game because of those potential monetary threats regarding the transmission mechanism,” Ebanoidze explains. “The threats to small countries come from big tech and stablecoins, as well as currencies such as the euro and US dollar,” he adds. “We are thinking about integration into the European Union and we want to be interoperable with the digital euro, but have monetary freedom.”

The NBG has already begun research on stablecoins and aims to create a flexible framework to give financial institutions and stablecoin issuers an environment that takes existing and future risks into account.

The CBDC ecosystem being developed “is a system for the future”, says Kireulishvili.