Nepal Rastra Bank (NRB) has taken a significant step toward introducing its own Central Bank Digital Currency (CBDC) by developing a prototype of the electronic currency system. Krishnaram Dhunju, Head of the CBDC Division at NRB, announced on Thursday that this prototype would serve as the foundation for the initial version of the CBDC, which will feature limited capabilities.
During a discussion organized by NRB on Thursday, Dhunju revealed the digital interface of the CBDC system, including the login screen, admin, and user dashboards. “We have developed the base prototype version 0.1. It can be used for both wholesale and retail CBDC,” he said. The system is built on a hyperledger fabric platform infrastructure, but the limit on how much money can be stored within it has not yet been determined. The name of the CBDC to be issued by NRB remains undecided, while neighboring India’s Reserve Bank has named its CBDC as ‘e-Rupee.’
The prototype was developed using an intermediary architecture model, meaning that NRB will not directly issue digital currency to users but will distribute it through banks and financial institutions. In the initial phase, these digital currencies will not earn interest and will be used for routine transactions. NRB has planned to begin a pilot test of the wholesale CBDC for interbank payments and securities transactions in August 2026.
To support the development of CBDC, NRB has joined the ‘Ambridge’ project as an observer. This project was launched by the Bank for International Settlements (BIS) Innovation Hub, based in Hong Kong. NRB has also received the codebase for the retail CBDC ‘Aurum’ prototype from BIS Innovation Hub, which has been integral to developing Nepal’s CBDC system.
In the stakeholder discussion, various concerns and suggestions were raised regarding the implementation of CBDC. Ashok Sherchan, Chief Executive Officer of Prabhu Bank, emphasized the need for preparedness against potential cyber-attacks and disruptions, which could risk system shutdowns. “We should proceed clearly on how to manage the financial losses that may occur when the system is blocked or not being used,” he warned.
Nileshaman Singh Pradhan, CEO of Nepal Clearing House, expressed concerns about the future of infrastructure developed by payment system operators and service providers once NRB’s electronic currency is implemented. Fintech companies have also expressed interest in offering e-rupee transactions via the Unified Payment Interface (UPI).
During the discussion, Police Superintendent Hobindra Bogti from the Central Investigation Bureau (CIB) highlighted the challenges in investigating digital commodities like cryptocurrency, developed by the private sector, and the potential cybersecurity risks of implementing CBDC. “We are in a situation where Chinese hackers attack the banking system and carry bags full of money from ATMs. Cybersecurity risks may also be high while trying to implement CBDC,” he cautioned.
Narayan Prakash Dhunju, CEO of Smart Choice Technology, questioned the purpose of the CBDC wallet, seeking clarity on whether it would be used to hold cash, manage the payment system, or both.
Governor Mahaprasad Adhikari addressed the concerns and clarified that CBDC should not be seen as an alternative to cryptocurrency, nor will it replace cash or disrupt the existing digital payment system. “Rastra Bank does not consider crypto as a currency, it is a digital asset and its value keeps going up and down,” he said. “The value of CBDC does not change, it is like cash. It will go a long way in addressing the challenges of crypto.”
Adhikari also mentioned that NRB is receiving support from the International Monetary Fund (IMF) for CBDC development. The IMF announced last year that it had started building a platform for central bank digital currencies that would facilitate transactions between countries.
09th Aug 2024
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