Rwandan Central Bank’s Ambitious Retail CBDC Project

The National Bank of Rwanda (BNR) is exploring the possibility of introducing a digital currency known as a central bank digital currency (CBDC). The BNR believes that a retail CBDC could promote a cashless economy and improve the resilience of the financial system in the country. Despite efforts to transition to a cashless society, the BNR expects to spend $35 million on printing and maintaining cash over the next five years. The proposed CBDC would be interest-free and compatible with existing payment systems in Rwanda, as well as potentially other CBDCs. The BNR suggests using a token-based model with programmability and smart contracts. This would enable offline transfers of digital cash using technologies such as Bluetooth or Near Field Communication (NFC), eliminating the need for a smartphone. The study anticipates some privacy and security concerns with programmability, but believes the benefits outweigh the drawbacks. Currently, payment service providers make up less than 0.9% of the Rwandan financial sector. Low financial literacy, high remittance costs, and a large informal economy are a few of the challenges faced by the sector. The BNR believes that reducing the amount of physical cash in circulation could help formalize the economy. The study proposes user fees and holding limits to support this transition, although specific details are not provided. The BNR has not determined public acceptance of a CBDC and is seeking public comment on the feasibility study. The BNR prefers a distributed database model for reliability, rather than a distributed ledger. The study drew inspiration from the World Economic Forum’s CBDC Policy-Maker Toolkit. While tokenized wholesale CBDC projects have been explored by various entities, including Mastercard and Ripple, a tokenized retail CBDC would be an innovative step. Research into offline CBDC transfers is also ongoing, with the digital yuan in China offering similar solutions to those proposed by the BNR.