Ripple is the blockchain payments firm that uses the digital currency XRP, the world’s seventh largest cryptocurrency by market cap. In September, it announced a partnership with Bhutan’s central bank to develop a retail central bank digital currency (CBDC).
Bhutan’s Royal Monetary Authority (RMA) will pilot retail, cross-border, and wholesale payment use cases “in phases” for the digital ngultrum. This will take the country’s rate of financial inclusion to 85% by 2023, according to Ripple.
“CBDCs can provide non-bank participants with greater access to core payments systems and infrastructure, bringing them into the financial system. Over 93% of the population in Bhutan are mobile phone users, suggesting that there is almost one phone per citizen,” James Wallis, Ripple’s vice president of central bank engagements and CBDCs, told KrASIA.
Central banks across the APAC region are experimenting with different designs and implementations of CBDCs. Laos, for example, reportedly signed a memorandum of understanding with the Japan International Cooperation Agency to explore rolling out its own digital currency, per Nikkei Asia.
KrASIA recently spoke with Wallis to unpack how CBDC projects across the Asia Pacific will transform the region.
The following interview has been consolidated and edited for brevity and clarity.
KrASIA (Kr): What are the persistent problems in Bhutan’s payments sector?
James Wallis (JW): One of the greatest pain points in Bhutan’s payment sector is financial inclusion. With few specialized financial institutions, only an estimated 64% of adults have a formal savings account, while a mere 16% have access to credit. Their stated goal is to reach 87% financial inclusion by 2023.
However, Bhutan is at the cusp of a payments revolution. The country expects to see more changes in the next five years than there were in the last five decades. Developments in technology and regulations have laid the foundation for new payment solutions, as well as more efficient ways of processing such transactions. Essentially, this has paved the way for time-critical and instant payments—whether of high or low value.
In fact, just recently, Bhutan’s RMA enhanced its domestic payments system with the launch of the Global Interchange for Financial Transaction (GIFT), enabling faster, secure, and real-time payments. Our collaboration with Bhutan to pilot a retail CBDC is yet more evidence that speaks to how Bhutan’s payments sector is accelerating.
Kr: What makes Ripple’s private ledger technology stand out from the crowd?
JW: Being the only carbon-negative country in the world, it was important for Bhutan to continue the momentum of its economic growth without compromising on its sustainability efforts. Ripple’s CBDC private ledger, which is based on the public, open-source XRP Ledger, is carbon-neutral and 120,000x more energy-efficient than proof-of-work blockchains and is therefore perfectly in line with Bhutan’s commitment to sustainability.
Additionally, Ripple’s CBDC private ledger meets the highest security standards for central banks by providing complete sovereignty and the ability to customize privacy and policy requirements. The core technology behind the CBDC private ledger has been running for more than eight years without incident and with billions of dollars of value transacted every day.
While central banks can tap into existing blockchains to get CBDCs up and running quickly, most ledgers cannot handle the volume of transactions that a successful retail CBDC will require. The CBDC private ledger, therefore, stands out in its ability to handle thousands of transactions per second. It also has the potential to scale further, enabling central banks to move money in a cost-effective, reliable, and nearly instantaneous manner.
Kr: With more central banks across the Asia Pacific weighing the potential of CBDC projects, how will the region’s fragmented payments landscape be transformed?
JW: The payments landscape in the Asia Pacific region is fragmented. Each country has its own unique currency and payments infrastructure. As more central banks implement CBDCs, this could potentially allow for a more integrated payments landscape, but only if the different digital currencies are interoperable. If each country creates its own digital currency without interoperability in mind, we’ll just be recreating the same financial system that already exists today. In other words, CBDCs must be able to share and access information across multiple networks without an intermediary. Without interoperability, cross-border payments using CBDCs would still require expensive workarounds.
Ripple’s CBDC private ledger provides full settlement interoperability while allowing central banks to retain their monetary and technological independence. By ensuring that CBDCs are able to interact efficiently across the region—or even globally—we hope to enhance the utility of CBDCs and chart the way towards a future-forward cross-border payments landscape.
We are currently engaged with central banks around the world, including in the Asia Pacific, to find out more about their CBDC goals and how we can collaborate to translate these ambitions into reality.
Kr: What are Ripple’s plans in the Asia Pacific for the next three years?
JW: The Asia Pacific is the fastest-growing region for us, with transactions growing 130% year-over-year—a testament to the dynamic fintech payment ecosystem here, which is growing at a greater speed and scale than ever before. In markets like Singapore, regulatory clarity and an openness to innovation have contributed to a thriving fintech and crypto space.
We are also doubling down on efforts to accelerate the NFT space, having recently launched a USD 250 million Creator Fund and investing in Singapore-based NFT marketplace Mintable.
We think it’s important to note that the Asia Pacific is a region likely to be hit hard by climate change—so we believe sustainability is a key imperative for the financial industry. We at Ripple have already put our stake in the ground when it comes to climate action by joining the Crypto Climate Accord.