National Bank of Rwanda Takes Leap to Introduce CBDC

Jimmy Aki
Last Updated:

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

In alignment with Rwanda’s aspirations for a digital economy and its ongoing digital transformation, the National Bank of Rwanda (BNR) opened its completed feasibility study on retail Central Bank Digital Currency (CBDC) on May 8 to public comments.

National Bank of Rwanda Targets Cashless Economy

The National Bank of Rwanda opened a questionnaire form to enable residents of the country to submit their opinions on the ambition towards the introduction of CBDC.

A CBDC is a digital form of a country’s fiat currency that is issued and regulated by the country’s central bank. Unlike cryptocurrencies such as Bitcoin, which operate independently of traditional banking systems, a CBDC is a digital representation of the official currency of a country, backed by the government and central bank.

It could be recalled that the BNR published a feasibility research paper on a potential Rwanda CBDC on May 2, proposing a two-tier, universal, zero-interest CBDC with partial pseudo-anonymity.

A “two-tier” CBDC suggests a system where the BNR issues the digital currency to commercial banks, which then distribute it to the public. “Universal” indicates that the Rwanda CBDC would be available to everyone, while “Zero-interest” means no interest will be generated for holders, unlike traditional savings accounts.

Interestingly, “Partial pseudo-anonymity” suggests that while transactions may not reveal the identities of the parties involved, some level of information may still be accessible to authorities or in certain circumstances.

National Bank of Rwanda
National Bank of Rwanda Research Paper

This recommendation aims to improve Rwanda’s financial economy and interoperability with existing payment systems and other potential CBDCs.

Furthermore, the feasibility study identified 15 opportunities for a CBDC in Rwanda, with four key benefits standing out due to their high potential and limited alternative options for similar advantages. One advantage is the CBDC’s perceived resilience against network outages, power failures, or natural disasters. Another is the competition it could bring to Rwanda’s cashless payment channels, which are currently dominated by mobile money.

National Bank of Rwanda & New Australia Push for CBDC Innovation

Before the recent actions by the BNR to introduce a CBDC, the Reserve Bank of New Zealand (RBNZ) initiated a public consultation on “Digital Cash,” a proposed central bank digital currency (CBDC), starting on April 17.

According to the Consultation Paper, New Zealand’s Digital Cash will primarily target consumers and corporate users, focusing on retail transactions. The Reserve Bank’s motivation for issuing a CBDC stems from the decline in physical cash usage, which could negatively impact financial inclusion for cash-dependent individuals.

The paper also highlighted a survey indicating a gradual reduction in fiat currency usage, with about 58% of consumers using physical cash in 2023 compared to 63% in 2021. Additionally, the RBNZ aims to provide digital cash to address evolving needs and stimulate financial innovation, aligning with efforts by the National Bank of Rwanda.

Rwanda and New Zealand are not the only countries having CBDC initiatives. South Korea is expediting its CBDC project, aiming to test the usability of the digital Korean Won (KRW) by the end of 2024. Hong Kong has also entered the fray through the successful launch of the second phase of its e-HKD program to explore the potential of digital currency.

The successful launch of these CBDCs would position digital currency as the future of money, even as experts continue to predict a bullish run for cryptocurrencies like Bitcoin.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.