The Central Bank of Rwanda continues with a major retail CBDC project

The National Bank of Rwanda (BNR) has opened for public comment the completed feasibility study on a retail central bank digital currency (CBDC). BNR is contemplating a national digital currency that incorporates the latest innovations in technology and is highly adapted to local conditions.

Retail CBCCs will boost Rwanda's national initiative for a cashless economy and increase the resilience of a financial system that still faces frequent blackouts, BNR found. Despite its cashless goal, the central bank is expected to spend $35 million over the next five years to print and maintain its cash supply.

BNR is proposing an interest-free intermediate CBDC to work with all the country's existing payment systems and potential other CBCCs. After making appropriate amendments to the Central Bank Act of the country. He advocated a token-based model with open programmability and smart contracts rather than an account-based one.

The token allows digital cash to be transferred offline using Bluetooth or near field communication (NFC) technology and does not require a smartphone. This is in contrast to existing electronic payment options.

Programmatic will be a mixed blessing, the study found:

“The benefits of open programmability that enable value-added new products and services are expected to outweigh the privacy and security arguments.”

BNR is no more than “partial pseudonymity” for CBCC.

Related: BIS releases comprehensive paper on offline CBDC payments

Payment service providers currently account for less than 0.9 percent of Rwanda's financial sector. The sector is challenged by low financial literacy, high remittance costs and a large informal economy, among others. The BNR suggested that reducing the amount of money in circulation could further normalize the economy.

The study recommended imposing user fees and restrictions without specifying details. Public acceptance of CBDC was also an open question.

For greater reliability, BNR chose a distributed database model over a distributed ledger. His analysis used the World Economic Forum's CBCC Policymaking Toolkit.

Tokenized wholesale CBCC projects have been implemented by Mastercard and Ripple, as well as the European Central Bank and the Bank for International Settlements' new project, Agora. Tokenization in retail CBDC can be innovative. Offline CBDC transfers are also the subject of current research. China Digital Yuan offers similar solutions to those offered by BNR.

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