Nineteen countries in the Middle East and Central Asia, including Bahrain, Georgia, Saudi Arabia, and the UAE, are currently in the advanced stage of testing central bank digital currencies (CBDCs), according to the International Monetary Fund (IMF). In a recent blog post titled “Central Bank Digital Currencies Can Boost Middle East’s Financial Inclusion, Payment Efficiency,” the IMF highlighted the potential benefits of CBDCs in enhancing financial inclusion and improving payment efficiency in the region.
The post explains that CBDCs have the potential to improve cross-border payment services, which is a priority for oil exporters and Gulf Cooperation Council countries such as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE. The current frictions in cross-border payments, such as varying data formats and operating rules, as well as complex compliance checks, can be addressed by CBDCs, leading to significant reductions in transaction costs.
Additionally, CBDCs can foster competition in the payments market, allowing for direct transactions with fewer intermediaries. This can lower costs and increase accessibility, particularly in regions like the Caucasus, Central Asia, Middle East, and North Africa, as well as low-income countries. The IMF suggests that central banks, which are not profit-driven like commercial banks, can keep costs lower and improve payment services and technology platforms.
However, there are barriers that need to be addressed to maximize the benefits of CBDCs. These include low digital literacy, lack of identification, distrust of financial institutions, and low wealth. Policymakers need to ensure a healthy banking system and a robust regulatory framework to mitigate risks such as competition with bank deposits, which could affect bank profits and lending. Design features like offline functionality can promote inclusion in areas with poor mobile service.
The IMF supports countries in exploring CBDCs and offers guidance on policy and regulatory frameworks to minimize risks. Through capacity development and surveillance, the IMF assists policymakers in evaluating the need for CBDCs and helps them craft strong policies and regulatory frameworks to ensure monetary and financial stability.
The IMF’s stance on the benefits of CBDCs for countries in the Middle East and Central Asia invites readers to share their opinions in the comments section of the post.
