Rwanda weighing pseudo-anonymous CBDC to underpin cashless economy

Rwanda weighing pseudo-anonymous CBDC to underpin cashless economy

Rwanda’s central bank has published a research paper laying out the benefits, risks, and design recommendations for a digital franc.

The research paper summarized the key findings of a feasibility study on the economic, legal, functional, and monetary implications of a central bank digital currency (CBDC) that the National Bank of Rwanda (BNR) initiated in September 2022. The central bank has called on the public for feedback as it moves into the next stage of CBDC exploration.

🚀 Big News from #Rwanda 🇷🇼

Since September 2022, the National Bank of Rwanda has been exploring a new digital horizon with a feasibility study for a retail Central Bank Digital Currency (CBDC).

🌐What could this mean for you? Benefits, risks, and all the digital details coming… pic.twitter.com/vsxfeMr7Lp

— Central Bank of Rwanda (@CentralBankRw) May 2, 2024

BNR identifies four ‘sweet spots’ for a CBDC in the East African nation:

  • Increasing resilience against power outages, network failures, and natural disasters (which was one of the key considerations by the disaster-prone Bahamas).
  • Improving competition and innovation—the country’s cashless payments are dominated by two telecoms, which account for 70% of the market.
  • Contributing to Rwanda‘s vision of a cashless economy—the country is one of a few that have seen an increase in cash usage since COVID struck.
  • Developing cheaper, faster, and more transparent cross-border payments.

BNR recommends a two-tier indirect digital currency involving commercial banks because “it has a lower likelihood of disrupting the existing financial system.” It would also be interoperable with existing digital payments and other CBDCs.

Rwanda would implement a pseudo-anonymous CBDC, with the central bank revealing that its feasibility studies showed a strong interest in privacy features. This approach allows users to share more data to increase their spending limits or access other advanced features.

A digital franc would not bear interest, aligning with the vast majority of CBDCs globally. Israel is one of a few that is exploring an alternative, with the country’s central bank saying the competition with commercial lenders would lead to better services for the people.

Rwanda’s CBDC would be issued on a distributed database rather than DLT.

“Even though there is a high level of enthusiasm regarding DLT and ongoing research into more performant implementations, a distributed database is considered as the only mature technology to achieve production-grade performance,” the top bank stated.

Marvin Karenzi, an analyst at the bank’s payments department, revealed that BNR intends to proceed cautiously through proofs of concepts and pilot programs.

“This will generate various benefits for the BNR in terms of building the knowledge base, skills, and experiences in this new but rapidly evolving domain. This would strategically position the BNR in a favourable condition in terms of readiness to determine how to go forward with CBDC in the future,” he stated.

Rwanda joins its neighbors Tanzania, Kenya, and Uganda, which are in the early stages of CBDC exploration.

While all East African nations prioritize financial inclusion with digital currencies, Kenya’s central bank has claimed that its payment systems are sufficient and that “a CBDC in Kenya may not be a compelling priority in the short to medium term.”

However, East Africa’s largest economy pledged to continue monitoring developments and conducting feasibility studies to keep up with global developments in the space.

Nigeria remains the only country with a functional CBDC in Africa—the eNaira. The digital currency has failed to garner interest in the country despite a crippling cash crisis last year and the continued crackdown on digital assets this year.

This year, a consortium of Nigerian banks and payment firms announced they were developing cNGN, a naira-pegged stablecoin, as an alternative to the eNaira.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: Tech redefines how things are done—Africa is here for it

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