IMF Says CBDCs Could Boost Middle East's Financial Inclusion, Payment Efficiency

Central bank digital currencies (CBDCs) may not be essential to achieve intended policy goals, according to a survey of 19 central banks in the Middle East and Central Asia (ME&CA) region by the International Monetary Fund (IMF).

The survey also said that CBDCs can advance financial inclusion and lower the cost of financial services, and yet adopting a CBDC, requires careful consideration. However, the survey noted that underlying constraints and improving other digital payment systems may be a more practical alternative to CBDCs.

The IMF has been researching the evolution of CBDCs and guiding member nations about how and whether to integrate them into their respective monetary systems. A senior IMF official has also said that "one global CBDC platform that will allow for capital controls could cut payment costs." Several nations in the ME&CA region have explored the use of CBDCs, including Saudi Arabia, whose central bank recently joined a cross-border experiment with CBDCs for international trade with the Bank for International Settlements (BIS). The IMF's Managing Director Kristalina Georgieva has also previously said that CBDCs could replace cash in island economies.

"Ultimately, introducing digital currencies will be a long and complicated process that central banks must approach with care," the IMF survey concluded. "Policymakers need to determine if a CBDC serves their country’s objectives and whether the expected benefits outweigh the potential costs, risks for the financial system, and operational risks for the central bank."

Additionally, the IMF warned that since about 83% of funding for the banks in the region come from deposits, CBDC's may compete with bank deposits, which could weigh on bank profits and lending, and thus impact financial stability of a nation.

The survey said that the 19 central banks in the region are exploring issuing a CBDC the countries are mainly focused on how CBDCs can enhance financial inclusion and payment system efficiency.

"Specifically, in Middle East and North Africa oil exporters and the Gulf Cooperation Council countries, where financial markets are relatively more developed, the priority is making both domestic and cross-border payments more efficient, while for Middle East and North Africa oil importers, the Caucasus and Central Asia, and low-income countries, it is expanding financial inclusion."

The findings said that the uptake of CBDC's may only have marginal benefits without remedying other barriers like low digital and financial literacy, lack of identification, distrust of financial institutions, and low wealth.

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