Bhutan Pioneers Central Bank Digital Currency (CBDC) in Partnership with Ripple Labs

The Royal Monetary Authority of Bhutan (RMA) has embarked on a landmark initiative to pilot a Central Bank Digital Currency (CBDC) in collaboration with Ripple Labs, a global leader in blockchain solutions. This partnership, formalized in September 2021, aims to modernize Bhutan’s financial infrastructure, enhance cross-border payments, and expand financial inclusion while aligning with the nation’s carbon-negative commitments25917.

Strategic Partnership with Ripple Labs

The RMA selected Ripple’s CBDC Private Ledger, a blockchain platform designed explicitly for central banks, to develop a digital ngultrum (Bhutan’s official currency). This collaboration leverages Ripple’s expertise in cross-border payments and its energy-efficient XRP Ledger (XRPL) technology, which is 120,000 times more energy-efficient than proof-of-work blockchains like Bitcoin911.Key objectives of the partnership include:

• Financial Inclusion: Increasing access to digital payments for Bhutan’s unbanked population, targeting 85% financial inclusion by 2023261017.
• Cross-Border Efficiency: Streamlining remittances, which account for over 3% of Bhutan’s GDP, through faster and cheaper transactions610.
• Sustainability: Aligning with Bhutan’s carbon-negative status by using Ripple’s carbon-neutral blockchain infrastructure11.

Phased Implementation and Technical Framework

The CBDC pilot follows a multi-phase roadmap extending through 20261514:

1. Needs Assessment (2021–2023):
   • Identified use cases for retail, wholesale, and cross-border payments.
   • Integrated Ripple’s technology with Bhutan’s existing systems, including the Global Interchange for Financial Transactions (GIFT) and Electronic Public Expenditure Management System (e-PEMS)513.
2. Technical Design and Proof of Concept (2023–2024):
   • Developed a private, permissioned blockchain network for the digital ngultrum.
   • Tested interoperability with banks, payment providers, and government platforms1614.
3. Pilot Launch (2024–2026):
   • Controlled Testing: Trials with select users to evaluate security, scalability, and user experience114.
     Use Cases:
   • Retail Payments: Enabling digital transactions for everyday purchases.
   • Wholesale Settlements: Streamlining interbank transfers.
   • Cross-Border Remittances: Reducing costs for overseas transfers, particularly for Bhutan’s diaspora6916.
4. Nationwide Rollout (Post-2026):
   • A gradual expansion to all citizens, pending successful pilot evaluations17.

Environmental and Economic Benefits

Bhutan’s CBDC initiative aligns with its environmental goals:

• Carbon-Neutral Infrastructure: Ripple’s blockchain consumes minimal energy compared to traditional banking systems, supporting Bhutan’s status as the world’s only carbon-negative country11.
• Cost Savings: Estimates suggest a 40–60% reduction in cross-border transaction fees, critical for a remittance-dependent economy610.

Challenges and Regulatory Considerations

While the CBDC promises transformative benefits, it poses challenges:

• Banking Sector Disruption: Reduced reliance on commercial banks for deposits could weaken their role as financial intermediaries713.
• Monetary Policy Adjustments: The RMA must balance CBDC adoption with maintaining financial stability and controlling inflation114.
• Cybersecurity Risks: Rigorous testing is underway to safeguard against hacking and fraud15.

Global Context and Future Outlook

Bhutan joins over 80 countries exploring CBDCs, including China’s digital yuan and Cambodia’s Bakong710. Ripple’s CBDC Private Ledger is also being tested in Montenegro and Palau, highlighting its scalability for small economies1418.James Wallis, Ripple’s VP of Central Bank Engagements, emphasized:

“This partnership exemplifies how blockchain can drive financial inclusion without compromising sustainability or sovereignty.”511

Bhutan’s CBDC pilot with Ripple represents a bold step toward a digitized, inclusive, and sustainable financial ecosystem. By combining cutting-edge technology with phased implementation, the RMA aims to set a global benchmark for central banks navigating the digital currency landscape. As the pilot progresses, its success could inspire similar initiatives across developing economies seeking to harmonize innovation with environmental stewardship.