The National Bank of Rwanda (BNR) has announced that it has completed a feasibility study on a retail central bank digital currency (CBDC) and is now seeking public input. The BNR is exploring the possibility of creating a national digital currency that incorporates the latest technological advancements and is specifically designed to meet the needs of the local population.
The introduction of a retail CBDC would support Rwanda’s initiative to promote a cashless economy and enhance the resilience of the financial system, which is currently susceptible to frequent power outages, according to the BNR. Despite its goal of transitioning to a cashless society, the central bank expects to spend $35 million on printing and maintaining physical cash over the next five years.
The BNR is proposing an interest-free, intermediated CBDC that would be compatible with existing payment systems in the country, as well as potentially other CBDCs, after necessary amendments are made to the country’s Central Bank Act. The study recommends a token-based model with open programmability and smart contracts, rather than an account-based model. Tokenization would enable the transfer of digital cash offline using Bluetooth or Near Field Communication (NFC) technology, eliminating the need for a smartphone. This sets it apart from current electronic payment options.
However, the study acknowledges that programmability can have both positive and negative implications. The BNR anticipates that the CBDC would offer only limited anonymity.
Currently, payment service providers make up less than 0.9% of Rwanda’s financial sector. The sector faces challenges such as low financial literacy, high remittance costs, and a significant informal economy. The BNR believes that reducing the amount of cash in circulation could help formalize a larger portion of the economy. The study suggests the implementation of user fees and holding limits, although the details are yet to be determined. The acceptance of a CBDC by the public remains an open question.
The BNR prefers a distributed database model over a distributed ledger for increased reliability. The analysis conducted by the BNR utilized the CBDC Policy-Maker Toolkit developed by the World Economic Forum.
While tokenized wholesale CBDC projects have been undertaken by various organizations, including Mastercard, Ripple, the European Central Bank, and the Bank for International Settlements’ Project Agora, the concept of tokenization in a retail CBDC is considered an innovative approach. The transfer of CBDC offline is also an area of ongoing research. China’s digital yuan shares similarities with the proposed solutions put forth by the BNR.
In other news, President Biden has shown support for blockchain technology, recognizing its benefits and advocating for its adoption.