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CBDCs could boost financial inclusion and facilitate cross-border payments in the Middle East, the IMF says
Central Bank Digital Currencies (CBDC) could strengthen financial inclusion in the Middle East and improve cross-border payments, according to a survey by the International Monetary Fund (IMF).
The regulator pointed out that about two-thirds of Middle Eastern countries are exploring these national digital currencies, of which 19 are still in the research phase. However, some countries, such as Bahrain, Georgia, Saudi Arabia and the United Arab Emirates, have moved to the proof-of-concept phase. At the same time, Kazakhstan has launched two pilot programs for its digital currency.
Potential benefits
The IMF has highlighted the importance of a seamless cross-border payments system for a region with many oil exporters.
According to the regulator, cross-border payments in the Middle East often face challenges such as different data formats and varying operational and compliance rules. However, CBDCs can help solve these problems while reducing transaction costs associated with the traditional financial system.
Notably, some countries in the region have already introduced cross-border payment platforms, but CBDCs are expected to further improve financial services.
In addition to the potential cross-border use of these currencies, CBDCs can also improve financial inclusion within the region. The regulator stated:
“CBDCs can promote financial inclusion by fostering competition in the payments market and allowing transactions to be settled more directly and with less intermediation, in turn reducing the cost of financial services and making them more accessible.”
The IMF noted that central banks, through their CBDCs, can also help keep transaction costs cheaper because they don’t worry about making a profit. He added:
“The resulting increased competition in the payments market from a CBDC could also encourage the upgrading of technology platforms and the efficiency of payment services, helping financial services reach more people.”
Barriers
The IMF has warned that various challenges could significantly hinder the potential benefits of a CBDC. These challenges include low levels of digital and financial literacy, lack of identification, distrust in financial institutions and low wealth.
Furthermore, the IMF noted that CBDCs could impact the financial stability of the issuing country. This concern arises from the fact that around 83% of bank funding in the region comes from deposits, which CBDCs would directly compete with.
Has explained:
“Deposits make up a large share of bank funding in the region, around 83%. Because a CBDC may compete with bank deposits, it could weigh on bank profits and lending and have implications for financial stability.”
Posted in: Middle East, CBDC