The National Bank of Rwanda (BNR) has opened its feasibility study on a retail central bank digital currency (CBDC) for public comment. BNR is considering a national digital currency that will incorporate the latest technological innovations and be highly customized to local conditions.
BNR said the retail CBDC would advance Rwanda’s cashless economy initiatives and increase the resilience of a financial system that is still prone to power outages. The central bank expects to spend $35 million over the next five years to print and maintain cash supplies, despite its cashless target.
BNR is proposing an interest-free intermediary CBDC with interoperability with all existing payment systems in the country and potentially with other CBDCs. After appropriate amendments are made to the central banking laws of the country. We recommended a token-based model rather than an account-based model with open programmability and smart contracts.
Tokenization allows digital cash to be transferred offline using Bluetooth or near-field communication (NFC) technology, eliminating the need for a smartphone. This contrasts with current electronic payment options.
Programmability will be a mixed blessing, the study notes:
“The benefits of open programmability in promoting high-value, innovative products and services are expected to outweigh the claims about privacy and security.”
BNR did not envisage anything more than “partial pseudo-anonymity” for CBDCs.
Related: BIS issues comprehensive document on offline CBDC payments
Payment service providers currently account for less than 0.9% of Rwanda’s financial sector. The sector suffers from low financial literacy, high remittance costs, and a large informal economy, among other factors. BNR noted that reducing the amount of cash in circulation could lead to greater formalization of the economy.
The study recommended imposing user fees and retention limits, without ironing out the details. Public acceptance of CBDCs also remains an open question.
BNR preferred a distributed database model over a distributed ledger for improved reliability. The analysis used the World Economic Forum’s CBDC Policy-Maker Toolkit.
Tokenized wholesale CBDC projects have been undertaken by Mastercard and Ripple, as well as the European Central Bank and the Bank for International Settlements’ new project Agora. Tokenization of retail CBDCs could be revolutionary. Offline CBDC transfers are also a current research topic. China’s digital yuan features a similar solution to the one proposed by BNR.
Magazine: Powers On… Biden embraces blockchain technology, recognizes its benefits, and pushes for adoption.