Image: Katmandu Journal
It is an affliction of modern bureaucrats to itch for innovation. Few institutions suffer more acutely from this condition than central banks. From Lagos to Frankfurt to Washington, monetary mandarins have spent recent years in a flutter over the possibility of creating their own digital currencies. Nepal’s central bank is the latest to succumb. It has announced a pilot scheme for a digital version of the rupee by 2026. The project is sold as a leap forward. In truth it is a step sideways, and quite possibly a stumble. Nepal’s financial system works. It does not need this costly and disruptive fix.
The remarkable thing about digital payments in Nepal is how well they already function without official prodding. Walk through Kathmandu or any provincial town and you will see the evidence. Alongside the prayer flags and plastic stools, QR codes proliferate. Private systems such as eSewa, Khalti and Fonepay buzz with transactions, linking millions of users and small merchants. The momo vendor does not struggle to accept a digital rupee; he already takes payment by phone. The central bank’s newfangled token promises him nothing he lacks.
Yet the Nepal Rastra Bank (NRB) presses on, entranced by a global fad. Ever since Facebook’s ill-starred attempt to launch a private currency, central bankers have fretted about being displaced by big tech. That threat has receded, but the bureaucratic momentum has not. More than 130 countries are now exploring digital currencies. Only a few have launched them. Almost none can point to tangible benefits. Past experiments read like a chronicle of wasted effort. Ecuador’s digital money was shut down after years of neglect. Nigeria’s e-Naira has flopped despite official arm-twisting. The Bahamas’ “Sand Dollar” is more sand than dollar. Even China’s digital yuan, the most advanced of the lot, is better known for its snooping capabilities than its utility. It solved no pressing payments problem. Why should Nepal’s version be any different?
The NRB says it will start with a “wholesale” version, for settling transfers between banks. That sounds innocuous enough. But interbank systems in Nepal, such as ConnectIPS, already hum along nicely. Replacing them with a new digital ledger would demand expensive infrastructure, fresh cybersecurity protocols, updated laws and tricky international coordination. For what? To achieve the same outcomes, but with more risk and a hefty bill for consultants.
Proponents mutter about safeguarding monetary sovereignty and boosting financial inclusion. The first is a phantom menace; no private actor is about to usurp the rupee. The second is a dangerous fantasy. Where governments have tried to force digital currencies on the public to promote inclusion, they have often resorted to bribing people to use them or restricting cash. Nigeria’s attempt to push its e-Naira by suddenly constricting the supply of physical banknotes caused hardship and was slapped down by courts. Meanwhile, ordinary tools like debit cards and mobile money have done more for inclusion, without the coercion.
The issue is not one of technical prowess but of mission creep. Central banks exist to issue sound money, act as lenders of last resort as well as ensure financial stability. They are not meant to be competitors to fintech firms or to build social-credit systems in the guise of innovation. Each digital-currency project distracts from their core duties: sound regulation; vigilant supervision; and maintaining the resilience of the financial plumbing.
The NRB’s plan to move slowly is prudent. But going slow in the wrong direction is still a mistake. Sometimes the most innovative policy is the simplest: do not do it. The bank’s efforts would be better spent on less glamorous but more vital tasks such as ensuring payment systems are interoperable; guarding against cyberthreats; and enforcing prudent banking standards. None of these need a blockchain.
The future of Nepali payments is already in the palm of your hand. It is efficient, as well as cheap and privately run. The state’s digital token would only add complexity and cost. Nepal’s financial system is evolving just fine on its own. It does not need a bureaucratic reinvention. ■
