Palau is promoting a central bank digital currency (CBDC) pilot based on Ripple technology. Despite minor issues, feedback from pilots conducted on Ripple’s CBDC platform has been positive.
Successful CBDC Pilot
In the first phase of the program, the Ministry of Finance reported high satisfaction with Palau’s Ripple-based central bank digital currency (CBDC) pilot. About 31.7% of survey participants said they were satisfied with their experience, while 36.6% rated it as excellent.
The pilot program, which ran from June to September 2023, imposed various restrictions, included only 168 volunteers, and allowed the circulation of up to $20,000 worth of digital currency.
Volunteers were restricted from earning additional digital currency, non-selected users were unable to earn stablecoins, and only participating local retailers had the privilege of redeeming stablecoins for U.S. dollars. Palau’s Treasury secured the funds by issuing tokens on the XRP ledger and pledging them against US dollar deposits held at US FDIC banks.
Palau’s Ministry of Finance and Ripple Labs shared pilot results and outlined subsequent steps in the project roadmap. This initiative represents a pioneering effort to use stablecoins in a small island nation, laying the foundation for potential national adoption of stablecoins as a payment solution.
On December 7, Palau’s Ministry of Finance released an extensive report detailing the early stages of its innovative Ripple-based stablecoin program. Working with Ripple’s Central Bank Digital Currency (CBDC) and Central Bank Engagement team, the country has used Ripple’s CBDC platform at a technical level for pilot projects.
The program, which began in June 2023 and ended in September 2023, facilitated up to 200 employee volunteers from Palau’s administration to engage in transactions with local retailers, but data showed that only 168 participated.
Although 58% of respondents found it easy or very easy to set up and use their wallet for payments, they encountered issues during payment transactions. Half of the participants reported experiencing slow times when using their wallet or processing payments, as well as difficulties with using QR codes and entering manual addresses.
Despite these challenges, the Treasury marked the first phase of the program as a “success for both volunteers and retailers.” In the future, he emphasized the need to focus on building a larger ecosystem using stablecoins and establishing a legal framework, and announced his intention to introduce stablecoins nationwide as a convenient and cost-effective payment method in the long term.
Palau (PSC) stablecoin
Numerous countries are investigating and embracing central bank digital currencies (CBDCs) to strengthen payment systems, promote financial inclusion, and increase economic efficiency.
Last December, the Republic of Palau partnered with Ripple to introduce a US dollar-backed stablecoin on the XRP Ledger.
Palau Stablecoin (PSC) was launched as part of a phase 1 pilot program that included voluntary participation from government employees.
PSC is securely backed by US dollars and operates on the environmentally friendly XRP ledger.
In the pilot program, government employees were able to convert the stablecoins they received into funds deposited in local bank accounts. Following the success of Phase 1, a follow-up phase of the Palau Stablecoin Pilot Program is underway, which aims to expand the adoption and benefits of PSCs to a wider audience.
Australia, China, and India are also actively testing wholesale and retail applications for central bank digital currencies (CBDCs) to strengthen payment systems, promote financial inclusion, and increase economic efficiency.
Two CBDC pilot projects have been launched in India: wholesale (CBDC-W) and retail (CBDC-R).
Despite initial challenges, the Reserve Bank of India (RBI) aims to launch CBDC nationwide by the end of 2023.
The success of CBDC implementation in these countries has inspired more than 100 others to explore CBDCs with a variety of motivations, including enhancing financial inclusion, introducing domestic payments competition, and enhancing cross-border transactions.