Rwanda Central Bank Embarks on Innovative Retail CBDC Project

The National Bank of Rwanda (BNR) has unveiled its comprehensive feasibility study on a retail central bank digital currency (CBDC), now open for public feedback.

BNR envisions a national digital currency tailored to Rwanda's unique conditions, leveraging technological advancements and addressing local challenges. A retail CBDC would accelerate the country's cashless economy initiative and bolster the resilience of its financial system, which faces intermittent power outages.

Despite its cashless aspirations, the central bank estimates spending $35 million on printing and maintaining its cash supply over the next five years.

BNR proposes an interest-free, intermediated CBDC that seamlessly integrates with existing payment systems and potentially other CBDCs, subject to amendments to the Central Bank Act. The recommended model is token-based, enabling offline transfers via Bluetooth or Near Field Communication (NFC) without requiring smartphones. This contrasts with current electronic payment options.

Open programmability and smart contracts offer potential benefits, but the study acknowledges the trade-off with privacy and security. The BNR anticipates "partial pseudo-anonymity" for the CBDC.

Payment service providers currently account for less than 0.9% of Rwanda's financial sector, facing challenges such as low financial literacy, high remittance costs, and a significant informal economy. The BNR believes reducing cash in circulation could formalize more of the economy.

The study recommends user fees and holding limits, but details are yet to be defined. Public acceptance of the CBDC remains an open question.

BNR favors a distributed database model for reliability, utilizing the World Economic Forum's CBDC Policy-Maker Toolkit for analysis.

Tokenized wholesale CBDC projects have been explored by Mastercard, Ripple, the European Central Bank, and the Bank for International Settlements' Project Agora. Tokenization in a retail CBDC may represent a novel innovation.

Offline CBDC transfers are also an active research area. China's digital yuan incorporates solutions similar to those proposed by the BNR.

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