As an analyst with extensive experience in the fintech industry, I find the National Bank of Rwanda’s (BNR) exploration of a retail central bank digital currency (CBDC) to be an intriguing development. Given Rwanda’s ongoing efforts towards a cashless economy and the challenges posed by frequent power outages, a CBDC seems like a logical next step.
The National Bank of Rwanda (BNR) has made its recently finished feasibility study on a retail central bank digital currency (CBDC) accessible for public feedback. The BNR is exploring the possibility of launching a customized national digital currency, leveraging advanced technology and adapting it to unique local circumstances.
In line with Rwanda’s drive towards a cashless economy, introducing a retail CBDC (Central Bank Digital Currency) would strengthen the nation’s financial infrastructure and enhance its resilience against power outages, as per the Central Bank’s findings. However, the bank anticipates spending approximately $35 million over the next five years on the production and upkeep of physical currency, which seemingly contradicts their cashless agenda.
The Central Bank of the Netherlands (BNR) proposes introducing an interest-free, intermediated central bank digital currency (CBDC), which can be used in conjunction with all current payment systems within the country and may also be compatible with other CBDCs. This proposal is subject to necessary amendments to the Dutch Central Bank Act. Instead of an account-based system, they suggest a token-based model that includes open programming capabilities and smart contracts.
As a data analyst, I’d describe it this way: With tokenization, you can transfer digital money using Bluetooth or NFC technology without the need for a smartphone. Unlike modern digital transactions, this method enables offline transactions.
Programmability would be a mixed blessing, the study noted:
“The advantages of open programmability, which facilitates value-added innovative products and services, are expected to outweigh the arguments of privacy and security.”
The BNR foresaw no more than “partial pseudo-anonymity” for the CBDC.
Approximately 0.9% of Rwanda’s financial industry is occupied by payment service providers. This sector faces several hurdles, including low financial knowledge, elevated remittance fees, and a substantial informal economy. The Central Bank of Rwanda suggested that decreasing the usage of cash could bring more of the economy into the formal sector.
The research proposed implementing user charges and setting restrictions, without working out the specifics. The public’s approval of a Central Bank Digital Currency remained uncertain.
The BNR preferred a distributed database system instead of a distributed ledger for enhanced reliability in their design. They based their examination on the World Economic Forum’s CBDC Policy-Maker Toolkit for this analysis.
Mastercard, Ripple, the European Central Bank, and the Bank for International Settlements (via Project Agora) have initiated tokenized large-scale Central Bank Digital Currency (CBDC) initiatives. Retail CBDC tokenization represents a novel development. Research also focuses on offline CBDC transfers. China’s digital yuan shares features with proposals from the Dutch National Bank (BNR).
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2024-05-09 00:25