In pursuit of its central bank digital currency (CBDC) goal, the Central Bank of Montenegro has signed an agreement with Ripple to develop a pilot national digital token. Despite not being a member of the European Union, Montenegro has been using the Euro as its national currency since 2022.
Creating A Montenegrin Digital Currency
According to Ripple’s vice president for bank engagement and CBDC affairs, James Wallis, the project is expected to be completed in phases, including examining the practical application of a virtual currency in the country. Wallis noted that more details about the deal would be released later as the two parties iron out the project’s priority.
The Ripple official indicated that there would be a sandbox stage in developing and releasing the proposed Montenegrin digital asset. He added that the sandbox process ensures that the central bank would put the digital currency in circulation under strict conditions.
The Ripple vice president said that the firm would work closely with the nation’s central bank to ascertain the use cases and critical factors that will ensure the smooth takeoff of the project later in April. Furthermore, the Governor of the Central Bank of Montenegro, Radoje Zugic, stated that the bank would collaborate with the government and academia to determine the merits and demerits of the CBDC.
Also read:Zugic noted that the initial evaluation assesses the risks that national stablecoins would pose to the continued availability of electronic payment, efficiency, security, and regulatory compliance. He added that user protection and privacy are other areas of interest to the central bank.
Prime Minister Abazovic reportedly disclosed the news of the latest partnership between the Central Bank of Montenegro and Ripple during the World Economic Forum (WEF) summit in Davos in January.
Ripple has been making waves in the CBDC space due to its numerous engagements with countries looking to develop their national digital currency. The firm is currently in strategic partnerships with dozens of central banks from different jurisdictions.
CBDC And The Global Financial Market
In a January 2023 report, the WEF assessed the use of CBDC to support ailing economies amid the instability in the global traditional finance market and the volatility in the prices of crypto assets. The report revealed that the global macroeconomic space had been troubled by challenges of rising inflation, low economic growth, and high debt ceilings.
Last year, inflation hit a 40-year high in the US, accompanied by a free fall in the price of Bitcoin following its all-time high in November 2021. Thus, the WEF noted that during periods of extreme market instability, there had been calls for the deployment of CBDCs as an answer to the rising challenges facing the global financial ecosystem.
According to the global economic body, advocates of CBDC point to the technology’s interoperability and connectivity as the answer to the worldwide financial turmoil. Meanwhile, several institutions are exploring CBDC usage due to the rising interest in blockchain technology and its usefulness in the financial markets.
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