Learn how Rwanda is exploring the implementation of a tokenized retail central bank digital currency (CBDC) to advance its cashless economy initiative. Discover the features of the proposed CBDC, including offline transfer capabilities, and its potential impact on financial inclusion and economic formalization.
The National Bank of Rwanda (BNR) is taking bold steps towards a cashless economy with its consideration of a tokenized retail central bank digital currency (CBDC). In a recently opened feasibility study, the BNR invites public comment on its innovative approach to digital currency, which aims to leverage the latest technology while addressing local conditions.
A retail CBDC holds the promise of accelerating Rwanda's cashless economy initiative and enhancing the resilience of its financial system. With frequent power outages still posing challenges, the BNR sees digital currency as a viable solution to reduce reliance on physical cash. Despite a projected $35 million expenditure on cash printing and maintenance over the next five years, Rwanda remains committed to its cashless goals.
The proposed CBDC is designed to be interest-free and intermediated, with seamless interoperability with existing payment systems and potentially other CBDCs. Leveraging a token-based model, the CBDC enables offline transfers using Bluetooth or Near Field Communication (NFC) technology, eliminating the need for smartphones—a significant advancement over current electronic payment options.
While programmability offers opportunities for innovative products and services, the study acknowledges concerns regarding privacy and security. The BNR aims to balance these considerations while ensuring the benefits of open programmability outweigh the risks. Partial pseudo-anonymity is foreseen for the CBDC, striking a balance between privacy and regulatory requirements.
In a country where payment service providers represent less than 0.9% of the financial sector, the CBDC holds potential to drive financial inclusion and formalize the economy. High remittance costs, low financial literacy, and a sizable informal economy present challenges that a digital currency could help alleviate.
The BNR's preference for a distributed database model over a distributed ledger reflects a focus on reliability, drawing insights from the World Economic Forum's CBDC Policy-Maker Toolkit. While details on user fees and holding limits remain to be finalized, public acceptance of the CBDC is a critical consideration for its success.
The initiative aligns with global efforts in digital currency innovation, with tokenized wholesale CBDC projects underway by industry leaders like Mastercard and Ripple. The proposed retail CBDC and its offline transfer capabilities signal a pioneering approach, akin to China's digital yuan and ongoing research into offline CBDC payments.
As Rwanda embraces digital innovation to propel its economy forward, the exploration of a tokenized retail CBDC represents a significant milestone towards achieving a cashless future that fosters financial inclusion and economic growth.
(DEREK ANDERSEN, COINTELEGRAPH, 2024)