The Central Bank of Montenegro (CBCG) is working with enterprise crypto and blockchain solutions provider Ripple to develop the country’s first “national stablecoin” in the form of a central bank digital currency (CBDC).
Both entities will launch a pilot program that will enable the central bank to finalize a strategy for the practical implementation of a digital currency and also create a design to simulate its circulation.
Central bank-issued digital currencies or CBDCs are a form of cryptocurrency that is issued by a country’s central bank. Unlike popular cryptocurrencies like Bitcoin and Ethereum which operate on a decentralized network without any central authority controlling their issuance or distribution, CBDCs run on a permissioned blockchain that is managed by a central bank.
The token’s value is denominated in the issuing country’s fiat currency and it can be used as legal tender for digital payments.
A CBDC has many use cases, such as widening the financial inclusion of society, modernizing monetary policy, improving payment security, and increasing the efficiency of cross-border payment settlements.
Ripple Joins Montenegro’s Central Bank to Develop and Test CBDC
Montenegro, which is a European country that adopted the euro as a currency but is not a member of the European Union (EU), became one of the first jurisdictions in the continent to adopt a national digital currency.
The EU and the European Central Bank are currently working on developing a proof-of-concept for the ‘digital euro’ which will be finalized by the end of 2023.
In a statement released on April 11 announcing the program, Radoje Zugic, the Governor of the Central Bank of Montenegro, said the bank always looks forward to following “up-to-date” national banking trends and ensuring that it maintains an efficient financial system.
The governor also added that the project will see the central bank work closely with Ripple, the Montenegro government, and the country’s academia to “create a practical digital currency or secure currency solution” that will test the functionality and potential of Ripple’s distributed ledger technology (DLT).
The pilot program will also analyze the risks and advantages posed by CBDCs when it comes to the availability of electronic means of payment, security, efficiency, regulatory compliance, and protecting the rights and privacy of end users, which is of utmost importance to the central bank.
According to the CBCG, the pilot will go through several stages where the Montenegro government will identify how to implement a national stablecoin into the country’s economy and design a simulation to test the token’s circulation and usage under a controlled environment.
James Wallis, the VP of central bank engagements and CBDCs at Ripple lauded the Central Bank of Montenegro’s efforts to bring the next level of digital transformation to its financial infrastructure while addressing one of the biggest financial challenges – financial inclusion.
He acknowledged Ripple’s track record of “successfully connecting disparate payment systems” and leveraging blockchain technology’s utility to issue digital currencies and provide solutions to enable payments to hundreds of financial institutions around the world.
The VP thanked the CBCG for choosing Ripple to help launch its first national stablecoin by aligning with its core objectives, which are fostering and maintaining a sound banking system and a safe and efficient payment system, and contributing to achieving and maintaining price stability.
The central bank says the introduction of a national digital currency will be another step forward to digitizing financial services and “fostering a world of greater financial stability” for the citizens of Montenegro.
The country becomes the latest to join the CBDC bandwagon after the Bank of Japan (BoJ) announced in February that it will be rolling out a pilot program this month to test the use of the ‘digital yen’. As of today, more than 100 countries are exploring the possibility of introducing a CBDC into their economies, including France, India, Russia, and China, among others.
China is at the forefront of CBDC development, with its digital currency electronic payment (DCEP) system for the ‘digital yuan’ or e-CNY already in an advanced pilot phase.
The People’s Bank of China (PBOC) first began working on a national cryptocurrency back in 2014 and launched the CBDC in the country’s retail sector in 2021. The e-CNY has been tested in several large-scale trials.
Ripple Rallies as Crypto Market Recovers From Last Year’s Winter
At the time of writing, XRP – the native token of the Ripple blockchain – is trading at $0.50 – down 3% in the last 24 hours. The token has had tremendous growth over the past month, even more than Bitcoin, with prices surging almost 40%.
The latest rally comes as a giant relief to XRP investors who have been holding on for so long to see such an event.
The cryptocurrency faced a massive decline after Ripple was sued by the U.S. Securities and Exchange Commission (SEC) in December 2020 for allegedly raising $1.3 billion through XRP token sales, which the regulator claimed was an unregistered security.
The case led to many popular crypto exchanges delisting the token that powers the Ripple network which is supposed to be a blockchain-based alternative to the popular cross-border SWIFT payment system.