Merchants in Papua New Guinea’s capital city of Port Moresby have been participating in a proof-of-concept pilot of a digital version of the country’s Kina currency. Find out more about Papua New Guinea digital currency below.

The proof of concept went live with select stores and cafes in Port Moresby and a small number of users at the end of 2024. Following the successful initial deployment, the number of people participating in the pilot will now be expanded, ahead of a full rollout of the Digital Kina.

The Proof of Concept study was launched to examine how a Central Bank Digital Currency, or CBDC, could be integrated into the state’s existing payment systems to address some of the key challenges facing the financial sector. These include:

1. Enhancing Efficiency: A CBDC has the potential to reduce reliance on physical cash, lowering the costs associated with cash handling and distribution while improving transaction efficiency.
2. Strengthening Security: The blockchain technology underpinning CBDC’s provides a secure platform for transactions, greatly reducing the risk of counterfeiting and fraud.
3. Promoting Financial Inclusion: By offering a digital payment option accessible to individuals and businesses, in both urban and remote areas, a CBDC could play an important role in bridging the financial inclusion gap in Papua New Guinea.

“The CBDC proof of concept is an important step to improve the cost and efficiency of Papua New Guinea’s financial system,” Bank of Papua New Guinea governor Elizabeth Genia says.

“Digital Kina has the potential to solve challenges in financial inclusion, security, and accessibility, and we will work to ensure that it is beneficial to communities across the country.”

The Digital Kina is the first central bank digital currency to be built on the open-source Hyperledger Iroha 2 blockchain. The pilot was conducted by the Bank of Papua New Guinea in cooperation with Japan’s Ministry of Economy, Trade and Industry and Japan-based fintech Soramitsu.

Scope and Objectives of the PoC

The study was designed as an exploratory step to evaluate the feasibility of introducing CBDC in Papua New Guinea. With the support of our partners, we were able to simulate the core functions of a digital currency system, and staff from the BPNG, JICA and the Japanese Embassy tested digital payments and transaction security under controlled conditions.

While the subsequent presentation will delve into the detailed findings and technological aspects of the study, the strategic importance of the Proof of Concept allowed us:

• to identify the potential benefits of a Central Bank Digital Currency tailored to our specific economic and financial landscape;
• to gather insights from users and merchants to understand their needs and expectations; and
• to assess the operational and infrastructural requirements for scaling up to a broader pilot phase.

To use the central bank’s digital currency, participants download a mobile app and can then scan a merchant’s QR code to make a payment. A video demonstrating how the service works in stores is available to view on YouTube.

Digital Kina and the Global CBDC Wave

Similar initiatives have been launched in countries like Nigeria with the eNaira, which faced adoption challenges due to public distrust and cash dependency, and China with the digital yuan (e-CNY), which has seen more structured implementation in retail transactions.

One interesting comparison is the Sand Dollar in the Bahamas, one of the first fully deployed CBDCs, which aims to improve access to banking services for remote island communities—similar to how the Digital Kina seeks to reach Papua New Guinea’s rural population. Additionally, Japan’s involvement in this pilot aligns with its broader interest in CBDC research, despite the Bank of Japan itself taking a cautious approach.

A key challenge for many CBDCs, including the Digital Kina, will be ensuring widespread user adoption and integration with existing financial infrastructure. Looking at the experiences of other nations, factors like public trust, ease of use, and incentives for merchants will be critical in determining its long-term success.