ILLUSTRATION: KATMANDU JOURNAL
The idea of a central bank digital currency (CBDC) tends to conjure images of cutting-edge monetary labs in Frankfurt or Shenzhen. The Nepal Rastra Bank (NRB) is not one of them. Yet the Himalayan central bank has begun work on a digital version of the Nepali rupee. In a country where cash still changes hands at vegetable markets and many citizens live hours from the nearest bank branch, this may seem eccentric. It is not. Nepal has more to gain—and less to lose—from a state-issued digital currency than many bigger economies.
CBDCs (once the domain of policy seminars) are now policy. Eleven countries including Jamaica and Nigeria have launched them. Over 100 more are in various stages of research or development. The rationale differs by geography: in Europe, to modernise payments; in China, to wrest control from tech giants; in the Caribbean, to serve remote islands. But the shared motivation is simple: to ensure public money stays relevant as the financial system increasingly runs on private rails.
Nepal’s digital infrastructure is still maturing. Yet the logic of a CBDC is compelling not despite these constraints, but because of them. Its payment system is fragmented and fragile. Only 55% of adults hold bank accounts. Many districts have no formal financial institutions at all. Power cuts and poor mobile coverage frequently disrupt transactions. For the quarter of Nepalis who are unbanked, digital finance is more of an abstract concept than a true revolution.
A CBDC, if designed for low-tech environments, could help. A basic wallet accessible via SMS, or one that functions offline, would allow remote communities to access central bank money directly, without the need for commercial banks or fintechs. This is not a fantasy. The Bahamas’ “Sand Dollar” is already in circulation in settlements reachable only by boat. Bhutan, Nepal’s neighbour, is testing a similar system with support from Ripple, a blockchain firm.
Private wallets are not a substitute. They rely on banks, charge fees and depend on weak mobile internet. A CBDC would introduce a public option into the digital payments ecosystem, one not motivated by shareholder returns or quarterly metrics.
Critics note (including this publication) such systems are expensive to build and vulnerable to hacking. But the alternative—relying on cash trucks and frozen ATMs—is hardly cheaper or safer. In rural Nepal, a misplaced log can block a road for days; a landslide can isolate villages for weeks.
Nepal’s monetary policy operates under constraints. The rupee is pegged to the Indian one. The economy leans heavily on remittances, which flow through global platforms often denominated in dollars. As dollar-based crypto-assets creep into circulation, the central bank risks being disintermediated from its own currency.
A CBDC would restore some measure of control. Unlike cryptocurrencies, it is issued and regulated by the state. It provides a direct channel between the monetary authority and citizens, reducing reliance on intermediaries. In theory it could allow for more effective policy transmission such as targeted stimulus or real-time relief payments in emergencies.
Sceptics warn CBDCs could trigger bank runs during financial stress, as people rush to convert deposits into digital cash. This risk exists but it is not insurmountable. Design choices—such as caps on holdings or no interest accrual—can mitigate it. In Nepal’s case, the immediate concern is not capital flight to a CBDC, but capital leakage through foreign digital assets that the central bank cannot supervise.
Maintaining a cash-based economy is not free. India spends roughly 0.6% of its GDP managing currency. Nepal’s per capita costs are lower but the logistical burden is heavy. Every banknote must be printed, transported, secured and replaced. Torn rupee bills are a common sight in Kathmandu; in the hills they are treated like family heirlooms.
Digital currency would reduce that strain. Urban users already rely heavily on mobile payments. A shift to digital rupees in cities would ease pressure on the physical cash supply, allowing the NRB to focus its resources on areas with genuine need for banknotes. Over time this would reduce costs and contain their growth.
Traceability also helps. A CBDC leaves a data trail, which can support anti-money-laundering efforts and widen the tax base. Nepal has been flagged by international watchdogs for lax financial transparency. A digital currency won’t solve the problem, but it would make it harder to ignore.
Privacy concerns are legitimate. But digital money need not mean mass surveillance. The NRB could adopt tiered privacy rules: low-value transactions anonymous, high-value ones traceable. The technology exists. What matters is the legal framework behind it.
Unlike cash, CBDCs are programmable. This opens up new policy tools. Government transfers can be made conditional—valid only for food or redeemable within 30 days. Subsidies can be geo-fenced to certain provinces. Disaster relief can be sent instantly to verified recipients.
China has tested such features in its e-CNY pilots. The Eastern Caribbean has used its DCash platform to deliver emergency aid after hurricanes. Nepal, prone to earthquakes and floods, would benefit from similar agility.
Critics find this unsettling: money with strings attached can feel paternalistic. But so are most government transfers. A paper ration coupon is more restrictive than a digitally tagged payment. The difference is only one of medium not of principle.
The NRB is proceeding with caution. It has developed a prototype CBDC using Hyperledger Fabric, a permissioned blockchain system. It has proposed legal changes and created a CBDC unit, as well as has plans to pilot wholesale use in 2026 and retail access by 2027.
The risks of moving too fast are real. But so are the costs of delay. Nepal’s financial system is not yet fully digital. That gives the NRB an opportunity to shape it before private actors fill the void. If central bank money fades from daily life, it may not return.
A digital rupee will not fix Nepal’s fiscal imbalances or upgrade its telecoms overnight. But it would give the central bank better tools to manage an increasingly complex financial landscape. And, in a region where digital currencies are rising from Thimphu to Hyderabad, sitting out may prove more radical than joining in. ■
Name withheld by request. The writer is an economist at the Nepal Rastra Bank. Opinion submissions may be sent to [email protected].
