The Royal Monetary Authority (RMA) of Bhutan has announced a new collaboration with Ripple (XRP) to create a new state-owned digital currency, on the company’s CBDC private ledger.
The African answer to digital currency. Bhutan’s initiation
The San Francisco-based company is expected to help the African country’s central bank create a digital Ngultrum (the local currency) on its platform, which can facilitate cross-border payments for citizens, according to early rumours about the nature of the collaboration.
“Our collaboration with Ripple is testament to the potential of CBDCs to provide an alternative and sustainable digital payment instrument in Bhutan,” said Yangchen Tshogyel, deputy governor of the Royal Monetary Authority of Bhutan.
“Ripple’s groundbreaking technology will allow for the experimentation of a CBDC with our existing payments infrastructure—while ensuring efficient and cost-effective cross-border transfers”.
With this new agreement, Bhutan is proving itself to be one of the most open-minded African states to digital innovations from a financial perspective.
In 2019, the Central Bank had launched the Global Interchange for Financial Transactions (GIFT), which is a national electronic funds transfer system for public and government spending.
This system facilitates the transfer of funds from one branch of a bank to any other branch within the nation.
The project with Ripple pursues the sustainability goals that Bhutan has set for itself in order to be the first zero-emission country, as Ripple’s CBDC ledger meets these requirements perfectly.
Ripple’s CBDC ledger
Ripple was founded in 2012 as a global payments network, enabling the fast transfer of money in different currencies.
It has quickly become one of the most interesting crypto projects in the world of financial services, due to its speed and traceability of transactions, as opposed to other digital currencies.
Following the great interest of major central banks in digital currency projects, it decided to create a service last March to facilitate these projects, launching its CBDC private ledger.
The service is based on the same blockchain technology as the regular XRP private ledger, but with some privacy and coin-tracking requirements necessary for state digital currency projects.
The ledger would be capable of operating tens of thousands of transactions per second.
“We believe this solution will overcome the major challenges around creating and managing a sovereign digital currency,” the firm told during a meeting to present the ledger. “And we’re just getting started. We are also working on a fresh approach where central banks will be able to join a network of CBDC Ledgers that enables full settlement interoperability, while allowing each member to retain their monetary and technological independence”.
CBDC alternatives to cryptocurrencies
The central bank-owned Bank for International Settlements, a few days ago warned all governments to accelerate all CBDC projects that are currently in place.
This is the only way to counter the spread of cryptocurrencies and the growth in the adoption of these digital currencies. There are many states that already have CBDC projects in a more or less advanced state. China recently started a first large-scale test of a prototype digital yuan.
It is no coincidence that many central banks are keen to emphasize that all state digital currency projects are quite different from normal cryptocurrencies, which were created precisely to counter the negative effects of monetary policy interventions on financial markets.
As this new agreement also shows, it is inevitable that in some way central banks will have to use the infrastructure and expertise of crypto companies to implement their projects.
And the creation of a ledger for CBDCs by Ripple could make the Californian company a sort of laboratory or hub for many central banks, such as the Ram of Bhutan, to develop their projects.