Central bank digital currency enters proof-of-concept stage

The National Bank of Rwanda (BNR) on Thursday, July 31, announced it had officially advanced to the proof-of-concept (PoC) stage for its Central Bank Digital Currency (CBDC) – a digital form of the money it issues. The proof-of-concept phase involves conducting small-scale empirical tests and validation activities to gain insights into CBDC designs, typically in a laboratory environment, according to the International Monetary Fund (IMF). This is the second stage out of IMF’s five stages that are required to fully develop a CBDC. These stages include preparation, proof-of-concept, prototypes, pilots, and production, respectively. ALSO READ: Digital currency development process underway – central bank governor In a statement issued on Thursday, BNR said the progress follows a comprehensive feasibility study carried out in 2023, in collaboration with the Alliance for Financial Inclusion (AFI). The study aimed to objectively assess the potential opportunities and risks of introducing a CBDC in Rwanda. This initiative, the central bank said, is an important step in the country’s drive towards a more inclusive and innovative financial system. A CBDC as digital cash issued by the central bank. It’s similar to regular money you use but in a digital form. People and businesses can use it, or sometimes only banks. There are two types: retail for everyone, and wholesale only for banks. ALSO READ: Rwanda’s leap into central bank digital currency What next? By entering the proof-of-concept stage, the central bank will now start to test the technical feasibility of various CBDC use cases identified in the feasibility study, a decision the bank said reflects its commitment to critically examine the practical implications of a CBDC before making further decisions. “The PoC focuses on testing the technical feasibility of the use cases identified in the feasibility study. This phase serves as a reality check, providing the NBR with hands-on experience and actionable insights to guide the future direction of Rwanda's CBDC initiative,” it stated. ALSO READ: Rwanda mulls a digital currency in two years - Central Bank Steps to CBDC development According to the IMF, there is a '5P methodology' designed to guide central banks in exploring and developing a CBDC, from research to potential launch. The methodology draws from experiences in various jurisdictions and incorporates best practices from different industries, and is intended to facilitate experimentation and support progressive decision-making while effectively managing risks. Preparation, the initial phase, focuses on researching trends, defining objectives, establishing success criteria, evaluating feasibility, assessing capacity, and analysing risks. The proof-of-concept phase involves conducting small-scale empirical tests and validation activities to gain insights into CBDC designs, typically in a laboratory environment. The prototype phase concentrates on the development or acquisition of necessary technologies and the selection of relevant partners; the pilot phase represents the live testing of a quasi-final product, while the production phase marks the final issuance and operation of the CBDC.

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Central bank digital currency enters proof-of-concept stage