Central bank moves to amend digital currency issuance law
The Nepal Rastra Bank has launched an exercise to revise the Nepal Rastra Bank Act to allow the central bank to issue digital versions of Nepalese currency.
As the global economy moves towards digitalization, Nepal, in line with the efforts of many countries to adopt digital currency, has launched a study and is preparing to issue the country’s central bank digital currency.
A central bank digital currency is legal tender issued by a central bank in digital form. It is the same as fiat currency and therefore exchangeable with it. Only its form differs from fiat money.
The Nepal Rastra Bank (NRB) Act, 2002 does not empower the central bank to issue digital currency. It only authorizes the central bank to issue paper money and coins.
“A task force formed by the central bank has drafted an amendment bill to allow Nepal Rastra Bank to issue and manage digital currency,” said Revati Nepal, head of currency management department at the bank. central. “After internal discussions, we will send the draft law to the government for tabling in Parliament.”
The central bank has announced through Monetary Policy 2021-22 that a feasibility study for a central bank digital currency in Nepal will be conducted as part of ongoing global studies regarding the use and feasibility of digital currency.
A study team led by Nepal, the head of the currency management department, suggested that issuing such a currency is feasible. But before that, the team suggests the central bank to make legal arrangements authorizing itself to issue and manage the digital currency.
Nepal said the team recommended steps on how to move forward with the introduction of digital currency, including preparing the legal framework. “There are suggestions for technical and economic issues to consider,” he said, without elaborating.
According to him, after the issuance of such digital currency, the NRB will prepare a separate digital wallet through which digital banking transactions could be conducted. “Steps will also be taken to explore interoperability with digital payment service providers,” he added.
However, the central bank is in no rush to introduce the digital currency as it first wants to observe how neighboring South Asian countries including India and China are moving forward with the introduction. digital currency.
“We don’t want to take unnecessary risks by rushing into the introduction of digital currency,” Nepal said.
In February, India’s Finance Minister Nirmala Sitharaman announced that its central bank would launch a digital version of its currency in the next fiscal year 2022-23 which begins on April 1. The southern neighbor is set to become one of the biggest economies to introduce a digital currency.
The Press Trust of India reported on July 21 quoting Ajay Kumar Choudhary, Executive Director (Fintech) of the Reserve Bank of India (RBI), saying that the RBI was working on a phased implementation of a digital currency both in wholesale and retail segments. India is expected to roll out the digital currency in early 2023, according to the report.
On the other hand, Nepal’s other neighbor, China, has already started trials for its digital currency in different cities.
China has been exploring the potential digital currency since 2014. It first conducted a trial launch of its central bank digital currency in 2020 in its cities including Shenzhen, Suzhou, Chengdu and Xiong’an.
These tests have been extended to Hainan province, Shanghai and a number of other cities in 2021.
China’s central bank rolled out a digital yuan, dubbed e-CNY, for Olympians and visitors during the Winter Games in February this year.
Even though different types of digital currency, including cryptocurrencies like Bitcoin, have been in use for several years, most countries are in the early stages of digital currency development.
A 2021 Bank for International Settlements survey of central banks found that 86% were actively researching the potential of digital currencies, 60% were experimenting with the technology, and 14% were rolling out pilot projects.
Although Nepal still has a long way to go before launching such a currency, it has conducted a feasibility study to potentially introduce a digital currency in the future. “The concept paper prepared by the Nepal-led study team is currently under discussion at the central bank,” Nepal said. “We will identify the way forward after the conclusion of the ongoing discussions.”
The introduction of digital currency, however, does not seem to be a priority for the central bank because the monetary policy 2022-23 did not mention it.
He, however, referred to amending Nepal’s Rastra Bank Act and the Banks and Financial Institutions Act to create a fully digital bank. Officials have yet to clarify its concept.
“For now the necessary preparatory work is underway, there is no need to mention digital currency in monetary policy,” said Prakash Kumar Shrestha, head of the economic research department at the central bank.
NRB officials and experts say there is no need to speed up the introduction of digital currency right away, but it is time for studies and research on such a currency to be carried out.
“The absence of digital currency has not stopped the services. Digital payments through various service providers are ongoing and digital payment formats are widely accepted,” Shrestha said. to introduce digital currencies We need to strengthen our cybersecurity measures before taking a step forward in the digitization of currency.
Officials and experts say that Nepal should at least observe the use of digital currency in India and the technology used by the southern neighbor. “It would be good for Nepal to introduce a digital currency with appropriate technology acquired from other countries,” Shrestha said.
Nara Bahadur Thapa, former executive director of NRB, also sees no need to rush to introduce central bank digital currency. “We need to study, understand and prepare based on the experiences of other countries before rolling out the digital currency,” he said. “It is also important to promote the retail use of the digital means of payment before the introduction of such a currency in the market.”
“Adapting digital payment in the retail industry will also help people accept the use of digital currency,” Thapa said. “So far, authorities haven’t even been able to promote digital payment methods at gas pumps and bullion shops.”
In the first 11 months of the last financial year 2021-22, there was payment of Rs 1.04 trillion through mobile banking while Rs 143.85 billion was processed through online banking, according to the central bank. There were payments worth Rs 79.98 billion through the use of QR codes. The data shows that the use of internet banking services remained stable in the 11 months of the previous financial year, while payments via mobile banking services and QR codes increased.