Nepal Rastra Bank (NRB) has outlined an ambitious plan to introduce digital currency under its fourth strategic framework (2022–2026). The central bank aims to pilot wholesale Central Bank Digital Currency (CBDC) by 2026, aligning Nepal with the global shift towards digital financial systems.
According to NRB spokesperson Ramu Paudel, the bank is currently deliberating on the nature and transaction models of CBDCs. “We are preparing to test wholesale CBDCs in select areas by 2026,” he said, emphasising ongoing discussions around the architecture and business models of the initiative.
From barter to digital evolution
Historically, the currency has undergone transformative changes, from the barter system to coins, paper money, and now digital payments.
Electrum coins, introduced by the ancient kingdom of Lydia in the 7th century BCE, marked the first major advancement in currency, followed by the Song dynasty’s innovation of paper money in the 10th century CE. These early shifts in financial systems laid the foundation for modern-day currencies.
Today, while most nations rely on paper currency, technological advancements have driven the adoption of e-money, payment apps, and stablecoins. Notably, Finland’s introduction of the Avant smart card in 1993 is considered the first electronic cash system, paving the way for CBDCs.
Rise of cryptocurrencies and their challenges
The advent of cryptocurrencies, initiated by Satoshi Nakamoto’s Bitcoin whitepaper in 2008, spurred interest in decentralised financial systems. However, cryptocurrencies like Bitcoin remain largely outside regulated financial frameworks, often associated with risks such as volatility, lack of legal recognition, and misuse in illegal transactions.
Recognising these challenges, central banks worldwide have focused on developing CBDCs as a safer, regulated alternative. Unlike private cryptocurrencies, CBDCs aim to bolster financial stability, enhance payment systems, and support monetary sovereignty.
Global CBDC landscape
As of 2023, over 93 per cent of central banks globally are engaged in some form of CBDC research or development, according to an Atlantic Council report. Countries like China, Sweden, and the Bahamas are leading the charge, with China piloting digital yuan across several cities and the Bahamas launching its “Sand Dollar” in 2020. Neighbouring India has also advanced in both wholesale and retail CBDC pilots.
In South Asia, Bhutan has initiated CBDC pilot programs, while Nepal lags in legal and infrastructural readiness. The lack of legislative frameworks to recognise CBDCs remains a significant hurdle for NRB, as the existing Nepal Rastra Bank Act (2058 BS) only authorises physical notes and coins as legal tender. Amendments to this act are underway to legally accommodate digital currencies.
Nepal’s Path to CBDC Implementation
NRB began exploring CBDCs in its 2020–21 monetary policy, followed by a 2022 concept paper titled “Central Bank Digital Currency: Identifying Appropriate Policy Goals and Design for Nepal.” This paper highlighted the need for strategic planning, public awareness, dedicated teams, and legal reforms.
Currently, NRB’s CBDC division, led by a director, is actively collaborating with international organisations like the Bank for International Settlements for technical support. The division has completed a comparative study of global CBDC initiatives, focusing on potential benefits such as improved monetary policy implementation, financial inclusion, and reduced currency printing costs.
The bank recommends prioritising wholesale CBDCs for interbank settlements and government securities before exploring retail CBDCs. Stakeholder engagement, robust infrastructure, and cybersecurity measures remain critical for successful implementation.
Challenges and opportunities
While CBDCs promise to modernise payment systems, enhance financial inclusion, and curb money laundering, challenges persist. Developing a comprehensive legal framework, ensuring data privacy, and addressing cybersecurity risks are paramount. Additionally, significant investments in infrastructure and technology will be required.
NRB emphasises a phased approach, starting with wholesale CBDC trials by 2026, with a possible expansion to retail use later. Collaboration with trade partners like India and China is also suggested for cross-border payment solutions.
As Nepal transitions towards digital currency, it joins a global movement reshaping the future of money. While hurdles remain, the shift promises to enhance financial systems and align Nepal with modern monetary practices.
