Montenegro has turned to Ripple for a cutting-edge pilot program to create a digital currency. Montenegro is a small country in Southeastern Europe, which is a part of the Balkans.

On 14 December 2021, Ivan Boskovic, the former Director of Payment Systems and Financial Technology Department at the Central Bank of Montenegro (“CBM”), published an article in Currency Research titled “Central Bank of Montenegro: How to Boost Banking and Payment Innovation in a Small Developing Economy.”

Boskovic wrote:

“The transformation of existing conditions matters because it is a fundamental source of long-term growth. Financial services which rely on digital innovations are rapidly transforming markets, and this process has been accelerated by the Covid-19 pandemic. Many countries are now trying to catch up.

“Fostering innovation brings with it different challenges depending on the level of development, market size or even the geographic position of a country. When compared to the frontrunners, small markets face barriers that are much more challenging than those found in advanced economies.

“However, some countries such as Singapore, Luxembourg and Malta are among the frontrunners. Their visionary policies have paid off and they are now treated as role models for many others. The key question is whether their success can be easily followed or copied...

“Small countries often lack the most basic requirements, such as physical and human capital, which becomes more acute as technology develops. Their authorities are struggling to support innovation and, in particular, the accumulation of innovation capabilities. In order to design, implement, and coordinate an effective policy, policy makers must take into consideration everything that affects the accumulation of all types of capital—physical, human, and knowledge.”

He went on to talk about “what the Central Bank of Montenegro (CBM) is doing to implement digital payment innovations.”

On January 18, Montenegro’s prime minister reported on a meeting with Brad Garlinghouse, Ripple’s CEO, and James Wallis, Ripple’s VP for Central Bank Engagements and CBDCs.

According to the translation by Google, Dr. Abazović told his Twitter followers:

“We discussed the development of a payment infrastructure that would provide greater financial accessibility and inclusion. Montenegro is open to new value and investments… In cooperation with Ripple and the Central Bank, we launched a pilot project to build the first digital currency or stablecoin for Montenegro.“

On January 26, Jeremy Hogan, a partner at the American law firm Hogan & Hogan, explained how the XRP Ledger (XRPL) could work with central bank digital currencies (CBDCs).

The XRP Ledger was created in 2012 by David Schwartz, Jed McCaleb, and Arthur Britto, and XRP is the native currency of the XRP Ledger.

Hogan told his Twitter followers:

“One possibility is that a CBDC could be issued on top of the XRPL as an IOU represented by a specific token. This would allow for the CBDC to take advantage of the XRP Ledger’s fast/efficient settlement times.

“Another possibility is that the CBDC’s Central Bank could open a “gateway” on the XRPL that allows users to deposit and withdraw the CBDC. This would allow for the CBDC to be used in conjunction with XRP and other digital assets on the XRP Ledger.

“It’s also possible that CBDCs will be pegged to XRP and interact with the XRP Ledger as a stable coin, which would allow for fast, cheap and efficient cross-border transactions.“

According to a report by Cointelegraph published earlier today, Montenegro’s Central Bank has signed an agreement with Ripple to create a strategy and pilot program for a national digital currency, potentially as a central bank digital currency (CBDC) or a stablecoin.

Montenegro has adopted the euro since 2002, even though it isn’t part of the Eurozone.

Wallis told Cointelegraph in a written interview that more details about the project would be unveiled later in the year. The initiative will have several stages, such as determining the practical application of the digital currency and conducting a sandbox stage to test it under controlled conditions. The project is set to begin this month.

As cited by the report, Central Bank of Montenegro Governor Radoje Žugić stated that the bank would work with the government and academic community to analyze the potential benefits and risks of CBDCs or national stablecoins in terms of electronic payment methods, security, efficiency, regulatory compliance, and user rights and privacy protection. Žugić emphasized the central bank’s commitment to following modern national banking trends and maintaining an efficient financial system.

Wallis also mentioned to Cointelegraph that Ripple is currently involved in multiple CBDC projects worldwide and is in talks with dozens of central banks globally.

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