Montenegro’s partnership with the cryptocurrency giant Ripple
February 2023 started with an announcement that went unnoticed globally, especially in the crypto community, that the southeastern European country of Montenegro declared a partnership with a company named Ripple. Ripple is the digital currency XRP and the global payment network in which it operates. American engineers created the Ripple network in 2012 in order to free online payments from exchange fees, transaction processing, and significant time delays between sending and receiving payments.
Montenegro’s Prime Minister Dritan Abazovi met with Ripple’s CEO Brad Garlinghouse and Vice President of Central Bank Engagement James Wallis at the World Economic Forum 2023 in Davos. Discussing “the development of a payments infrastructure that would provide greater financial accessibility and inclusion. Montenegro is open to new value and investment,” – was a statement disclosed on Abazovic’s Twitter.
In partnership with Ripple and the Central Bank of Montenegro, the country is launching a pilot project to build its first digital currency or stablecoin for national transactions.
What Montenegro is trying to establish in collaboration with Ripple is the so-called central bank digital currency (CBDC). CBDC is generally defined as digital money that the central bank issues. It represents a potential innovation in the payment system. It aims to offer a fast, cost-effective, reliable and resilient payment infrastructure in an increasingly digitalised economy. From a central bank perspective, CBDC could also respond to the declining importance of cash in some countries. This type of currency has been used in China since 2021, the pioneer country to develop and implement a CBDC, calling it the Digital Yuan, as well as in Sweden, where the CBDC e-krona ensures the stability of the payment system in case of an emergency.
Currently, Montenegro is using the Euro as its de facto domestic currency. Together with Kosovo, it unilaterally adopted the Euro. Montenegro is neither in the Eurozone nor a member of the European Union.
Before choosing the Euro as a currency, looking into the 20th century, the Kingdom of Montenegro adopted one of the world’s worst-performing currencies, the Yugoslav Dinar. After the devastating hyperinflation of 1992 in the region of the Socialist Federal Republic of Yugoslavia, the Dinar and Deutsche Mark began to be used as the two official currencies. After Germany entered the Eurozone, the German Mark ceased to be a legal tender and was switched to the Euro. Montenegro adopted it as well, due to increased monetary stability and to avoid further hyperinflation, although it did not conclude any agreement with the European Central Bank.
The former Director of the Payment Systems and Financial Technology Department of the Central Bank of Montenegro, Ivan Boskovic, published an article in December 2022. In the piece, he stated that digital transformation is a crucial source of long-term growth, particularly in the financial sector. In this sense, smaller countries like Montenegro face obstacles that are much more difficult to overcome than those of the world’s leading advanced economies. Working with Ripple could be the next step in bringing knowledge and technology into the country.