“The Government needs to become as flexible and mobile as an IT company, to automate all functions and services,… reduce 60% of officials, introduce large-scale privatization and outsourcing of government functions”: Ukraine’s Minister of Digital Transformation
Ukraine may be suffering a rising wave of rolling power blackouts and internet outages as the proxy war between Russia and NATO intensifies, but that doesn’t seem to have crimped the Zelensky government’s ambitions to transform the country into a digital wonderland. In the past week alone, Ukraine’s central bank unveiled plans for a digital E-hryvnia and Kyiv signed a digital trade agreement (yep, they do exist) with the United Kingdom.
The newly signed “DTA” is ostensibly aimed at helping the Ukrainian economy recover from its current malaise while also boosting both countries’ digital output. And guess what it includes? A provision for collaborating on digital identity. From a UK government press release:
“[T]there is a critical need for people to be able to use digital solutions to prove they are who they say they are, despite the loss of critical documentation or displacement across borders. The agreement provides a framework for the UK and Ukraine to cooperate to promote compatibility between their respective digital identity systems to help address this.”
While it is true that identifying citizens in the midst of war is both a challenging and vital task, digital identity is an area in which Ukraine already excels. In fact, as the digital rights group Reclaim the Net notes, it has a great deal to teach the UK on the matter:
Ukraine’s highly-sophisticated digital ID, Diia, is used to grant the public access to most government services online. It has nine digital credentials: the ID card, the identity provider (IDP) certificate for network access, birth certificate, passport, driving license, tax number, student card, and vehicle registration certificate.
Diia was first launched in February 2020 by the Ministry of Digital Transformation, which itself was created in late 2019. The platform is partly funded by the European Union’s eu4digital initiative, which in its own words “aims to extend the benefits of the European Union’s Digital Single Market to the Eastern Partner States, channelling EU support to develop the potential of the digital economy and society, in order to bring economic growth, generate more jobs, improve people’s lives and businesses.”
The EU’s support of Ukraine’s digital transformation is also a means of bringing Ukraine closer to the EU Digital Single Market, according to Ambassador Matti Maasikas, the head of delegation of the European Union to Ukraine. The ultimate goal of Diia, which means “action” in Ukrainian, is to digitize and automate all government services as part of President Volodymyr Zelenskyy’s “State in a Smartphone” concept.
“For citizens, the government should be just a service – simple, but more notably comprehensible,” Mr. Zelenskyy said at the beginning of the Diia presentation. “In general, our goal is to make sure that all relations with the state can be carried out with the help of a regular smartphone and the Internet. In particular, voting. This is our dream, and we will make it real during presidential, parliamentary or local elections. It is a challenge. Ambitious yet achievable.”
War as a Catalyst
Ukraine’s digitization of government services predates the conflict with Russia, but in the eternal spirit of never letting a good crisis go to waste it has been significantly expanded and accelerated in the succeeding months. In early March, Simon Johnson, a former chief economist at the IMF, and Oleg Ustenko, an economic advisor to Ukrainian President Volodymyr Zelenskyy, floated the idea of creating a universal basic income, paid for with the billions of euros of frozen Russian assets.
While the idea didn’t quite take off, due largely to fears about the potential blow back from expropriating Russian funds, Ukraine has experimented with digital financial handouts. On March 6, Ukraine PM Denis Shmyhal announced a “War-Time Economy” with a one-off payment of 6500 UAH (roughly $200) to employed, self employed, and other entrepreneurs who lost employment in some of the worst effected areas of hostilities. Given how desperate people in the country are, the offer of free government assistance is particularly alluring. Registration for the funds is only possible through the Diia app.
As Ukraine’s Minister of Digital Transformation and Deputy Prime Minister Mykhailo Fedorov told participants of the 2021 edition of the World Economic Forum’s Young Global Leaders program, the government’s goal is to create a digital ID system that within three years would make Ukraine the most convenient State in the world by operating like a digital service provider. “We are shaping a vision of a post-war Government,” he said. And in that vision, government will be digitized, privatized, automated and outsourced:
The Government needs to become as flexible and mobile as an IT company, to automate all functions and services, significantly change the structure, reduce 60% of officials, introduce large-scale privatization and outsourcing of government functions. Even in the customs. Only such a Government will be able to bring about quick and bold reforms to rebuild the country and ensure rapid development.
According to a September 2022 article for the IT solutions-for-development website, ICT works, by Washington-based Troy Etulain, a former adviser to the Ukrainian Minister of Infrastructure, the popularity of Diia is exploding at the same time that Kiev’s ambitions for the platform continue to grow:
In 2021 there were 12 million Diia users. By August 2022, the number had grown to 18 million, with 50,000-70,000 users joining daily. Vice Prime Minister and Minister of Digital Transformation (and friend of Zelensky) Mykhailo Fedorov has many remaining ambitions for Diia, his signature achievement…
Diia is quickly expanding its services. In August, Diia launched a service for people to register property damaged or lost due to Russian aggression in Ukraine, including as far back as 2014, when Russian began occupying Crimea. While citizens can apply now, a commission will be formed at a later date to assess damage claims. Soon the government will use it to make pension payments.
Minister Fedorov has the noble ambition of tackling petty corruption by moving small official transactions, such as applying for a building permit or obtaining any kind of license, to Diia as well. And in August, he announced integration of Diia with Poland’s myObywatel digital governance platform.
Next Up: A Ukranian CBDC
Etulain, who according to his own bio “has experience designing and implementing” media and technology development programs, “including strategies for the UN and USAID”, highlighted one of the next key steps in Ukraine’s digital transformation (which should come as no surprise to NC readers): establishing a central bank digital currency (CBDC). As I have contended in previous articles as well as in my book Scanned, a central bank digital currency would be all but impossible to pull off without first installing a centrally controlled digital identity system. Which, as luck would have it, Ukraine already has. Back to Etulain:
Each digital hryvnia would have its own unique identification number, just as each physical US dollar has a unique serial number and can be tracked along its journey through transaction after transaction. This would help tremendously with tracking how reconstruction funds were spent. And with increased international trust will come increased support.
The idea of a national digital currency (also called a central bank digital currency, or CBDC) is not new. The US Federal Reserve is considering a digital dollar. And in 2021 Ukraine’s friends across the Black Sea in Georgia launched their own digital currency, in large part to stem corruption (and to allow enable instant payments and, eventually, smart contracts). And in 2020 the National Bank of Ukraine considered the idea.
Obviously digitizing payments across the entire reconstruction value chain will make things more efficient, particularly if integrated with a digital hryvnia. And, in addition to digital currencies’ promise to lower the cost of capital (printing money, stocking ATMs, transporting it in bulletproof vehicles), just imagine the challenging, expensive logistics of providing cash in areas with decimated infrastructure.
A Digital Economy Without Electricity
But what about the logistics of running an increasingly digitized society, government and economy in a country with a decimated electrical infrastructure? As NC readers well know, the Russian army has spent the past couple of months executing a surgical destruction of Ukraine’s electrical grid. According to John Helmer, Russia’s main goal is to hamper Ukraine’s ability to transport (as opposed to producing) electricity. And as Yves noted in her Nov 3. piece, Has Russia Already Pwnd Ukraine?, it would seem that “the most efficient way for Ukraine to restore the grid (and remember no rebuild will be terribly efficient) would be to get the needed equipment from Russia.”
That ain’t gonna happen, at least not any time soon. In the meantime, Ukraine is having to deal with increasingly widespread rolling blackouts. As Aljazeera reported a few days ago, even if power is restored in a local area, it is quickly disrupted again by Russian cruise missile attacks:
Engineers work double or triple shifts to repair or replace fried circuits and blackened transformers. After a few days, the power is fixed.
Then, Russia does it again.
Yet ironically, even as Russia escalates its attacks on Ukraine’s electricity grid, plunging huge swathes of the country into darkness, the mission to digitize Ukraine’s economy is, if anything, intensifying. Last week, the National Bank of Ukraine (NBU) revealed its draft concept for developing a CBDC known as the digital hryvnia or the e-hryvnia.
“The development and implementation of the e-hryvnia can be the next step in the evolution of the payment infrastructure of Ukraine, advance the digitalization of the economy, further promote cashless settlements and reduce their price, improve transparency of settlements, and boost overall confidence in the national currency. ” said Oleksiy Shaban, Deputy Chairman of the NBU.
The NBU outlined three possible forms the CBDC might take:
- “For retail non-cash payments with the possible functionality of programmed [or programmable] money.”
- In the circulation of digital assets. Under this option, the e-hyrvnia “can become one of the key elements of qualitative infrastructure development for the virtual assets market in Ukraine.”
- To facilitate cross-border payments.
It is far from clear how long it may take for the NBU to launch an e-hyrvnia. It is one thing to launch a draft proof of concept; it’s quite another to actually launch a CBDC that is: a) functional; and b) widely adopted. As readers may recall, the first CBDC to go fully live in a largish economy, Nigeria’s e-Naira, has so far been a damp squib.
As with digital identity, CBDCs could offer a range of public benefits, including ease and convenience of use as well the possibility of targeting government benefits more precisely. And governments can come up with myriad pretexts for implementing one, from a public health crisis to climate change, to cyber security, to supplementing a CBDC.
But in this blogger’s humble opinion those benefits are significantly outweighed by the potential costs, risks and pitfalls. They include the total loss of privacy and anonymity in our payment behavior. As the DC-based blogger and analyst NS Lyons warns, CBDCs, “if not deliberately and carefully constrained in advance by law,… have the potential to become even more than a technocratic central planner’s dream. They could represent the single greatest expansion of totalitarian power in history.”
While most of the talk, at least in public, is about CBDCs supplementing, as opposed to supplanting, cash, the mid to long-term goal is to drive the final nail in cash’s coffin, as Etulain candidly admits:
“The aim here is also behavior change all the way down to the most remote village, to lay a foundation that over the long term moves the society and economy towards the benefits of a cashless economy.”
Like CBDCs, digital identity schemes offer gains in efficiency, transparency and convenience but they also have the potential to grant governments and corporations unprecedented power to coerce or incentivize changes in human behavior while at the same time eroding individual agency and autonomy. Fedorov himself believes that if you offer people an overwhelming amount of convenience that is accompanied by strong cybersecurity, they will have no choice but to trust the technology.
There is an ominous air of TINA (Margaret Thatcher’s “there is no alternative”) to the rapidly accelerating developments around digital identity and CBDCs, both in Ukraine and around the world. As mentioned at the start of this article, the governments of Ukraine and the UK have agreed to collaborate on digital identity, just as the UK has already done with Singapore. That agreement follows a similar collaboration on digital ID between Ukraine and Estonia, which has also digitized many of its government services.
In the EU, the European Council has just adopted a common position on proposed legislation regarding the framework for a European digital identity (eID). Russia is also planning to roll out a digital ID and is scheduled to pilot a digital rouble next year. Meanwhile, in the US ten advocacy organizations, including the Better Identity Coalition, have called on Congress to pass the Improving Digital Identity Act of 2022, which mandates the government to develop federal digital ID infrastructure. All of this is taking place with virtually no public awareness let alone input.