Nepal Moves Closer To Adopting CBDC, As Central Bank Approves Study
Central Bank Digital Currencies (CBDCs) are the latest buzz among central banks and Nepal is looking to ride the wave to create a digital version of its national currency.
Nepal Rastra Bank (NRB), the country’s central bank, has proposed a revision to legislation governing its powers and responsibilities, allowing it to explore the possibilities of a CBDC, reports The Kathmandu Post.
The Nepal Rastra Bank (NRB) Act 2002 has no provision for the central bank to create a digital currency, as only paper notes and coins are allowed.
Revati Nepal, a senior executive at the bank, noted that a task force has been created, charged with the duty of drafting an amendment to the legislation to allow the NRB to issue digital currencies. “After internal discussions, we will send the bill to the government to table it in Parliament,” said Revati.
Plans of launching a CBDC had been in the works prior to the creation of the task force. Revati spearheaded a team that carried out a survey of the feasibility of a CBDC and reported that it was a viable venture but noted that some economic considerations will be factored in.
On the technical side of things, Revati suggested that the NRB will use a separate digital wallet for digital banking transactions to be carried out and will “explore interoperability” with payment service providers.
Nepal in no hurry
Compared to the breakneck speed of CBDC development in countries like Nigeria and the Bahamas. The country is choosing to concern itself with the creation of proper infrastructure to support the leap toward CBDCs.
“Cybersecurity must be considered before introducing digital currencies,” said Prakash Kumar Shrestha, head of economic research at NRB. “We have to strengthen our cybersecurity before taking a step forward in the digitalization of currency.”
Nepal amplified Shrestha’s comments by stating that the NRB will not “take unnecessary risks by rushing into introducing digital currency.”
Learning from the forerunners
Financial experts in Nepal are advising the regulators to steal a page from other jurisdictions that have launched their own CBDCs. India, its southern neighbor, has made giant strides and there are calls for Nepal to observe India’s progress.
China, another neighboring country, has reached an advanced stage with its digital yuan while other Asian nations are at various stages of their CBDC development.
The data shows that Nepal is ripe for a CBDC as its electronic banking is rising at a frenetic pace with billions of dollars in transactions being settled in the last 11 months
CBDC progress in other South Asian countries
China has been working on its central bank digital currency since 2014. In 2020, the initial launch of the digital yuan targeted cities such as Shenzhen, Suzhou and Chengdu. The trials continued through the following years, with the most recent 2022 digital yuan trial focusing on the Henan, Fujian and Heilongjiang provinces, and the cities of Guangzhou, Chongqing, Fuzhou, and Xiamen.
China also launched a digital currency pilot during the Beijing Winter Olympics. According to Reuters, athletes and visitors used the e-CNY digital currency to make daily payments of CNY 2 million (more than USD 315,000) during the event.
In India, the finance minister has revealed plans to introduce a digital version of the Indian rupee in 2023. If successful, India would become one of the largest economies to introduce a CBDC.
According to a Bank for International Settlements survey conducted in 2021, 86% of the questioned central banks were looking into the potential of CBDCs, and 60% of them were experimenting with the technology. The same survey indicated that 14% of them were managing pilot projects.
BIS claims that banks are exploring the potential benefits of CBDCs in the context of achieving public good objectives such as maintaining price stability and public trust in money.
