Rwanda's Central Bank Advances Cashless Economy Vision with Proposed Digital Currency
Summary:
The Central Bank of Rwanda (BNR) has unveiled a comprehensive study on a proposed retail central bank digital currency (CBDC), opening public discussion on the matter. The BNR sees the digital currency as deepening the country's cashless economy initiative while combating frequent power issues affecting the financial system. The plan includes a token-based, intermediary-free CBDC that can integrate with existing payment networks and potentially other CBDCs. However, public acceptance and the specifics of user fees or holding limits remain unresolved. Pilot token-based CBDCs have been launched by global entities like Mastercard and the European Central Bank.
The Central Banking Authority of Rwanda (BNR) invites public input on a recently completed feasibility study for a retail central bank digital currency (CBDC). The BNR aims to develop a national digital currency that integrates cutting-edge technology and caters to local circumstances. A retail CBDC would promote the strategic plan for a cashless economy in Rwanda and improve the resilience of the country’s monetary system, which is regularly affected by power failures, as revealed by the BNR. Despite striving for a cashless endeavor, the central bank foresees an expenditure of $35 million for the creation and upkeep of physical currency over the coming five years. The BNR plans for an interest-free, intermediated CBDC that is compatible with all pre-existing national payment systems and potentially other CBDCs, following due alterations to the nation’s Central Bank Act. The bank suggested a system where tokens, not accounts, with inherent programmability and smart contracts are used. Through tokenization, digital cash could be transferred offline using Bluetooth or Near Field Communication (NFC) technology without needing a smartphone – a contrast to present electronic payment choices. Mixed reviews were noted for programmability – despite concerns over privacy and security, the potential for creative new products and services is likely to outweigh these. The BNR predicted that CBDC users would enjoy only “semi-pseudo-anonymity”. In the financial sector, payment service providers in Rwanda currently account for less than 0.9%. Challenges within the sector include poor financial literacy, high costs for money transfers, and a substantial informal economy. The BNR believes that decreasing the quantity of physical money could lead to more of the economy becoming formal. The study also suggested introducing user fees and establishing holding caps, without providing specific details. Public reception of a CBDC is yet to be determined. In terms of database models, the BNR preferred a distributed one over a distributed ledger for greater reliability, utilizing the CBDC Policy-Maker Toolkit from the World Economic Forum for its analysis. Token-based wholesale CBDC projects have been launched by Mastercard and Ripple, along with the European Central Bank and the Bank for International Settlements, through their joint Project Agora. It might be that the application of tokenization in a retail CBDC is a novel development. Likewise, the question of offline CBDC transfers is currently under examination. The digital yuan developed by China includes solutions comparable to those advocated by the BNR.
Published At
5/9/2024 12:03:05 AM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.