Nepal Rastra Bank (NRB), the South Asian country’s central bank, announced its intention to develop a central bank digital currency (CBDC) in August 2022. At the same time, the NRB appealed to the country’s parliamentarians to amend the Nepal Rastra Banking Act, which traditionally provides for the issuance of tangible currencies, to include provisions for the issuance of digital currencies.
Since September 2021, the NRB has made the use of virtual currency trading and mining illegal in the country. Nepali residents have been asked not to participate in any crypto-related activities as they could face legal liability if caught.
Forkast’s Jenny Ortiz-Bolivar spoke with Nepal Rastra Bank spokesperson Gunakar Bhatta about the latest developments surrounding the digital Nepali rupee, the country’s stance on the crypto ban, and the outlook for stablecoins.
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The following Q&A has been edited for clarity and length.
Jenny Ortiz-Bolivar: In August 2022, Nepal Rastra Bank announced its intention to develop a central bank digital currency (CBDC). Can you tell us about the latest developments on this matter?
Gunakar Bhatta: We are in the early stages of research. So what I mean is that once the research results are published, maybe a year or two later, there are certain steps, there are certain methods, and it will be determined whether or not it’s feasible for our country. But so far, we are not far behind.
We also cooperate with other countries and global institutions, especially the Bank for International Settlements. We will receive technical assistance from other international organizations. We would also like to request technical assistance regarding this matter. Once you conduct your research, you will have a complete idea and a clear picture of the next path forward.
Ortiz-Bolivar: Considering a wholesale or retail CBDC?
Locust: Initially, a wholesale CBDC may be used, but that will depend on institutional recommendations.
Ortiz-Bolivar: What do you think about digital currencies in China and India?
Locust: Our neighboring large and economic powers are still conducting pilots, which means they are still in the research phase. We must learn lessons from other countries comparable to Nepal’s economic size, demographics and technological know-how. While it is impressive that our two large neighbors are working hard to promote CBDC, we do not know if it will be fully and widely used in those countries as well.
Ortiz-Bolivar: At present, Nepal’s law only authorizes the central bank to issue banknotes and coins. Has an amended bill to allow central banks to issue CBDCs already been enacted?
Locust: We are in the process of amending the law, especially the Central Bank Act, which is called the Nepal Rastra Banking Act. Similarly, the Banks and Financial Institutions Act is commonly referred to as the BFIA. If these two laws are amended, there will be room for CBDCs.
The basis of a CBDC is a change in legal structure. If relevant laws are amended, understanding will deepen and the scope will expand.
Ortiz-Bolivar: Other countries used CBDCs for cross-border transactions. Do you think something similar will happen in Nepal? If so, in which countries are you considering testing this?
Locust: Looking at our country’s macroeconomic and trade situation, our country has concentrated trade with two large neighboring countries.
Ortiz-Bolivar: So, is there any possibility of collaboration with China or India?
Locust: yes.
Ortiz-Bolivar: This time I would like to talk about virtual currency. Digital assets are prohibited in Nepal. why?
Locust: Some other countries also do not allow cryptocurrencies. Nepal is in a very unique situation. Our economy is characterized by a greater dependence on imports than on exports. Similarly, the economy also relies on remittances. Because we have a kind of fixed exchange rate regime, we have moved forward from different policies, different strategies. The economy is under control.
Macroeconomic management is a difficult challenge in Nepal. It is not easy as we are located between two huge emerging economies and several people from Nepal go abroad for study and work. Allowing virtual currencies could create challenges with some capital flight and further speculation. These questions exist whether our economy can manage it from a macroeconomic perspective.
Ortiz-Bolivar: What about stablecoins, which are cryptocurrencies pegged to another monetary or financial instrument? What is the stance of central banks on this digital asset?
Locust: Cryptocurrency is banned in Nepal, so other types of digital assets are not considered.
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