Palau satisfied with its Ripple-powered CBDC pilot

Palau is touting its pilot of a Central Bank Digital Currency (CBDC) based on Ripple technology. Despite minor challenges, the feedback from the pilot conducted on Ripple’s CBDC platform has been positive. 

A successful CBDC pilot 

During the program’s first phase, the Ministry of Finance reported high satisfaction in Palau’s Ripple-based Central Bank Digital Currency (CBDC) pilot. Around 31.7% of survey participants expressed satisfaction with the experience, while 36.6% deemed it excellent.

The pilot program imposed various restrictions, involving only 168 volunteers from June to September 2023, and permitted up to $20,000 worth of digital currency to enter circulation. 

Volunteers were restricted from acquiring additional digital currency, non-selected users were unable to obtain the stablecoin, and only participating local retailers had the privilege to redeem the stablecoin for U.S. dollars. Palau’s Ministry of Finance issued the corresponding tokens on the XRP Ledger and secured those funds by collateralizing them with U.S. dollar deposits held in a U.S. FDIC bank.

The Palau Finance Ministry and Ripple Labs have shared the pilot’s results, outlining the subsequent steps in the project’s roadmap. This initiative sets the stage for potential national adoption of the stablecoin as a payment solution, marking a pioneering effort in the use of stablecoins for small island nations.

On Dec. 7, Palau’s Ministry of Finance unveiled an extensive report detailing the initial phase of its innovative Ripple-based stablecoin program. Collaborating with Ripple’s Central Bank Digital Currencies (CBDC) and Central Bank Engagements teams, the country employed Ripple’s CBDC platform at a technical level for the pilot project. 

Launched in June 2023 and concluded in Sept. 2023, the program facilitated up to 200 employee volunteers from Palau’s executive branch to engage in transactions with local retailers, although the data indicates that only 168 individuals took part.

While 58% of respondents found the setup and usage of the wallet for payments easy or very easy, issues emerged during payment transactions. Half of the participants reported encountering slowness in wallet use or payment processing, along with difficulties related to QR code usage and manual address input.

Despite these challenges, the Ministry of Finance labeled the first phase of the program a “success among both volunteers and retailers.” Emphasizing the need for future phases to concentrate on building a larger ecosystem using stablecoin and establishing a legal framework, the ministry expressed its intention to introduce the stablecoin nationally as a convenient and cost-effective payment method in the long term.

The Palau (PSC) stablecoin

Numerous nations are investigating and embracing Central Bank Digital Currencies (CBDCs) to enhance payment systems, foster financial inclusion, and boost economic efficiency.

Last December, the Republic of Palau entered into a partnership with Ripple to introduce a U.S. Dollar-backed stablecoin on the XRP Ledger.

The Palau Stablecoin (PSC) was inaugurated as part of a Phase One pilot program, involving voluntary participation from government employees. 

The PSC is securely backed by the U.S. Dollar and operates on the environmentally friendly XRP Ledger.

In its pilot program, government employees were able to convert the received stablecoin into funds deposited in their local bank accounts. Following the success of Phase One, subsequent phases of the Palau stablecoin pilot program are in the pipeline, aiming to extend the adoption and benefits of PSC to a broader audience. 

Australia, China, and India are also actively testing both wholesale and retail applications for their Central Bank Digital Currencies (CBDCs) to enhance payment systems, promote financial inclusion, and increase economic efficiency. 

In India, two CBDC pilots, one for wholesale (CBDC-W) and another for retail (CBDC-R), have been launched

Despite encountering early challenges, the Reserve Bank of India (RBI) aims to nationally launch its CBDC by the end of 2023. 

The success of CBDC implementation in these countries has inspired over 100 others to explore CBDCs, each driven by diverse motivations, such as fostering financial inclusion, introducing competition in domestic payments, and enhancing cross-border transactions. 


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