Assessing Impacts of CBDC in Nepali Context

Nepal Rastra Bank (NRB), the country’s central monetary authority, has entered an advanced stage of exploration and development of wholesale Central Bank Digital Currency (CBDC), with a pilot launch planned for 2026. Keeping its baseline as a form of digital currency of the country, regulated and issued by the central bank, it will be brought into practice in the form of digital cash. People will be able to use the CBDC to buy groceries, pay for services, transfer money, and settle transactions instantly and securely using a smartphone or other digital devices. Unlike decentralized cryptocurrencies like Bitcoin or balances in private mobile wallets, which represent commercial liabilities, a CBDC is a direct sovereign liability of the state, serving as the digital equivalent of physical legal tender.

Global Picture

Globally, central banks are moving at different speeds in exploring and implementing CBDCs. Nigeria and Jamaica have already fully launched their digital currencies, whereas the European Union and the United Kingdom are working on their respective projects. The United States is in the research stage.

From China's digital Yuan to India's digital Rupee, many countries are rethinking the future of money in response to technological change and evolving payment habits. The adoption rate of China’s e-CNY has been impressive, with transaction volumes rising steadily and integration into the payment ecosystem expanding.

Nigeria’s experience, however, is entirely different. The eNaira, launched in 2021, aimed to enhance financial inclusion, reduce remittance costs and formalize the cash-heavy informal economy. However, the adoption rate was limited. One year after the launch, only 1.5% of wallets were in active use and transaction volumes were negligible.

Other experiences fall somewhere in between. The Sand Dollar of the Bahamas and the eCedi of Ghana are gradually gaining acceptance. In Latin America, Uruguay’s e-Peso pilot revealed that CBDC there could only complement existing payment methods—cards, cash, and mobile apps—rather than replace them outright. Most usage involved small-value transactions rather than large payments.

India’s experience is particularly relevant for Nepal. The Reserve Bank of India launched a retail CBDC pilot in 2022 and issued a substantial volume of digital rupees into circulation. While the adoption pattern has not been explosive, transaction volumes have grown steadily. The digital Rupee has not yet transformed payment.

The global picture of CBDC reflects a mix of success, slow adoption, and outright underperformance.

Measuring the Impact

A CBDC provides several advantages. It allows real time monitoring of money flows and provides central banks with high-quality data for liquidity forecasting. Undeclared income or informal transactions can be traced easily which will improve transparency and compliance. It also boosts digital governance and supports fintech Innovation, including the development of programmable money.

Along with formalizing remittance, it will also help consumers manage spending limits, enhance fraud detection and reduce transaction costs. However, the broader impacts of a CBDC should be assessed across three main dimensions: economic impact, financial inclusion, and international trade and remittances.

Economic Impacts: NRB’s studies recommend that Nepal’s CBDC should be non-remunerative and subject to quantity caps. In simple terms, CBDC holdings would not earn interest and would function like a basic digital wallet rather than a savings instrument. This design choice will ensure that CBDCs supplement, rather than compete with, bank deposits.

This approach preserves the effectiveness of traditional monetary policy tools. Interest rate transmission, inflation management and liquidity control would remain largely unchanged.

The cost-saving potential is significant. According to NRB, cash demand in Nepal has grown by an average of 12.5% annually over the past decade. Printing, transporting and securing physical costs the central bank approximately Rs 1.37 billion every year. Reducing dependence on cash could save a huge sum of money. Currency management cost reduction is, in fact, one of the primary motivations behind CBDC adoption. Over time, this could modernize Nepal’s payment infrastructure.

CBDCs will help to further digitalize the payment system by operating 24/7 with an enabled instant settlement mechanism. It also opens possibilities for streamlining public finance. Subsidies, pensions or welfare payments could be transferred directly to targeted digital wallets, especially if CBDCs are linked to Nepal’s National ID System. This would reduce leakages, delays, and administrative inefficiencies. Programmable features could restrict how funds are spent which will further enhance accountability.

Financial Inclusion: If designed appropriately, CBDCs can promote financial inclusion. With offline functionality and wide acceptability, the CBDCs have the potential to pull unbanked people into the banking system. Nepal still has a significant unbanked population, particularly in rural areas where access to formal financial services is limited. Simplified or tiered know-your-customer (KYC) requirements could help attract first-time users.

More than one-fourth population is still out of financial inclusion, and a large number of rural citizens are outside the formal finance channels. With no or low KYC patterns, CBDC will be able to attract the next unbanked mass here. Basic identification, such as citizenship or a national ID card, should suffice for entry-level wallets. The onboarding process should be as simple as signing up for a social media account.

The Sand Dollar of the Bahamas and the DCash of the Eastern Caribbean have shown that CBDCs can extend financial access to geographically isolated communities. Nepal’s rugged terrain and dispersed population make similar outreach relevant. Even though the International Monetary Fund (IMF) has warned that CBDCs are not a panacea for financial inclusion, they can complement broader policy efforts when supported by infrastructure and digital literacy initiatives.

International Trade and Remittance: CBDCs also hold promise for cross-border payments. In theory, they can reduce reliance on correspondent banks, cut fees, and enable near-instant settlement. For Nepal, where remittance inflows are vital, CBDCs can reduce layers of intermediaries that are making the remittance process slow and expensive.

However, cross-border benefits largely depend on interoperability. A standalone Nepali CBDC cannot reduce remittance costs unless partner countries adopt compatible systems. Integrating multi-country CBDC requires coordinated international frameworks. NRB has acknowledged that without coordinated international frameworks, traditional foreign exchange routes will still dominate.

However, Nepal’s growing digital integration with India can enable cooperation on this front as well. The planned linkage with India's Unified Payments Interface (UPI) demonstrates how Nepal's CBDC could integrate into Indian payment channels too. Nepal is also a member of regional blocs like SAARC or BIMSTEC. With talks on cross-border payment plans already underway, CBDCs could be effective in these regions. Engagement with international initiatives like the BIS-led mBridge and Project Aurum could further enhance wholesale settlement capabilities.

CBDC can therefore enhance international payment efficiency regarding the whole process as a part of broader networks. If interoperable CBDC becomes widespread among major trading partners, like India or China, Nepali exporters and migrant workers could benefit from faster and cheaper cross-border transfers.

The lessons from other countries support this argument as Nigeria's CBDC was also designed to lower remittance costs. Even the World Bank and the BIS have indicated that CBDC can improve cross-border payments upon aligning with jurisdictions.

Where the Benefit Lies

The NRB has been spending huge sums on printing, transporting and securing the physical form of cash. Recently, it signed a $16.99 million agreement with the China Banknote Printing and Minting Corporation to print banknotes of Rs 1,000 denomination. The CBDC adoption could significantly reduce such costs over time.

Beyond cost savings, CBDC could modernize domestic payments, streamline remittances, and bring unserved populations into the formal financial system. Features such as offline capability, basic phone compatibility, and tiered wallets are particularly important in Nepal’s context.

Transparency will be the most transformative benefit of CBDC adoption. It will improve compliance with domestic and international standards, strengthen anti-corruption efforts and reduce opportunities for illicit transactions.

The Real Obstacles

Global experience shows that CBDCs do not gain traction automatically. There has to be coordinated efforts from issuers, merchants, and users for its adoption. Without incentives and trust, its uptake may remain low.

There is also a risk of digital exclusion. Heavy reliance on smartphones and internet connectivity could marginalize vulnerable groups. Further, since existing digital payment systems like mobile banking, ConnectIPS, or digital wallets are already offering CBDC-like features, CBDs may appear redundant or confusing for users.

Countries like Nigeria and India have capped CBDC holding so that people cannot pull large amounts from bank deposits. This means cash or banking transactions cannot be fully replaced by CBDC.

Low digital literacy rate and limited trust in the digital systems can be the next major obstacle for full-fledged implementation of CBDC. Even successful pilot phases do not guarantee mass adoption, given a lack of stable and affordable internet connectivity. Since Nepal is still a cash-based economy, transition from physical cash to digital will require behavioral and structural changes.

Since CBDC operates entirely on a digital platform, cybersecurity risks also loom large. Protecting user data, preventing fraud, and ensuring system resilience require substantial investment.

CBDC can gain momentum only when it integrates its operations with remittance. However, international agreements and technical alignment with countries like India, Gulf nations, South Korea, Malaysia, or other third countries can be quite complex. Since CBDCs also pose a threat to banks’ revenue, their involvement should be calibrated.

Conclusion

CBDCs present both opportunity and risk for Nepal. They can reduce currency management costs, improve payment efficiency, enhance transparency, and support cross-border transactions. At the same time, infrastructure gaps, cybersecurity concerns, and behavioral barriers pose serious challenges in its implementation.

Without careful planning, CBDCs could remain underutilized or even introduce financial stability risks. Nepal can benefit from CBDC adoption, but only through a cautious, phased, and well-planned approach. Extensive testing, stakeholder engagement, and public education will be necessary before its rollout.

(Regmi is Deputy Manager at Rastriya Banijya Bank Ltd., currently working in Treasury Department.)

The piece was first published in the January 2025 edition of New Business Age magazine.