Cryptocurrencies

The Central Bank of Rwanda continues its ambitious retail CBDC project

The Central Bank of Rwanda continues its ambitious retail CBDC projectNational Bank of Rwanda (BNR) has opened its just-completed feasibility 

The Central Bank Of Rwanda Continues Its Ambitious Retail Cbdc Project
The Central Bank Of Rwanda Continues Its Ambitious Retail Cbdc Project

 

study on a retail central bank digital currency (CBDC) for public comment. BNR is considering creating a national digital currency that incorporates the latest innovations in technology and is highly tailored to local conditions.

The National Research Bureau found that a retail CBDC would strengthen Rwanda’s national cashless economy initiative and increase the resilience of the financial system, which remains vulnerable to frequent power outages. The central bank expects to spend $35 million on printing and maintaining its cash supply in the next five years, despite its cashless target.

BNR proposes to create an interest-free, intermediation central bank digital currency with interoperability with all existing payment systems in the country and possibly other digital currencies. After making appropriate amendments to the country’s central bank law. It recommended a token-based model, rather than computation, with open programmability and smart contracts.

Tokenization will allow digital cash to be transferred offline using Bluetooth or near field communication (NFC) and will not require a smartphone. This is in contrast to current electronic payment options.

The study indicated that programmability would be both a blessing and a curse:

“The benefits of open programmability, which facilitates innovative, value-added products and services, are expected to outweigh privacy and security arguments.”

BNR expected nothing more than “partial false anonymity” for the central bank digital currency.

Payment service providers currently make up less than 0.9% of the Rwandan financial sector. This sector faces challenges represented by low financial literacy, high remittance costs, and the large informal economy, among others. Reducing the amount of cash in circulation could formalize the economy, BNR noted.

The study recommended imposing usage fees and reservation limits, without sorting out the details. Public acceptance of central bank digital currencies (CBDC) has also been left an open question.

Blockchain Education Initiatives Are Taking Off Amid The Bullish Cryptocurrency Market
Blockchain Education Initiatives Are Taking Off Amid The Bullish Cryptocurrency Market

 

BNR preferred a distributed database model over a distributed ledger to increase reliability. Its analysis used the World Economic Forum’s Central Bank Digital Currency Policymaker Toolkit.

Wholesale tokenized CBDC projects have been implemented by Mastercard and Ripple, as well as the European Central Bank and the Bank for International Settlements’ new Agora project. Tokenization in a retail CBDC could be an innovation. Offline Central Bank Digital Currency (CBDC) transfers are also the subject of current research. China’s digital yuan features solutions similar to those proposed by the National Resources Department.

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