Central
Bank
Digital
Currencies
(CBDCs)
could
enhance
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,
with
19
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
stage.
At
the
same
time,
Kazakhstan
has
had
two
pilot
programs
for
its
digital
currency.
Potential
benefits
The
IMF
emphasized
the
importance
of
a
seamless
cross-border
payment
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
operating
and
compliance
rules.
However,
CBDCs
can
help
resolve
these
issues
while
reducing
the
transaction
costs
attached
to
the
traditional
financial
system.
Notably,
some
countries
in
the
region
have
already
introduced
cross-border
payment
platforms,
but
CBDCs
are
expected
to
advance
financial
services
further.
Besides
the
cross-border
potential
use
of
these
currencies,
CBDCs
can
also
enhance
financial
inclusion
within
the
region.
The
regulator
stated:
“CBDCs
can
advance
financial
inclusion
by
fostering
competition
in
the
payments
market
and
allowing
for
transactions
to
be
settled
more
directly
and
with
less
intermediation,
in
turn
lowering
the
cost
of
financial
services
and
making
them
more
accessible.”
IMF
noted
that
central
banks,
through
their
CBDCs,
can
also
help
keep
transaction
costs
cheaper
because
they
aren’t
concerned
with
making
a
profit.
It
added:
“The
resulting
increased
competition
in
the
payments
market
from
a
CBDC
could
also
encourage
upgrading
technology
platforms
and
the
efficiency
of
payment
services,
helping
financial
services
reach
more
people.”
Barriers
The
IMF
cautioned
that
various
challenges
could
significantly
hinder
the
potential
benefits
of
a
CBDC.
These
challenges
include
low
digital
and
financial
literacy
levels,
lack
of
identification,
distrust
in
financial
institutions,
and
low
wealth.
Moreover,
the
IMF
noted
that
CBDCs
might
affect
the
financial
stability
of
the
issuing
country.
This
concern
arises
because
approximately
83%
of
bank
funding
in
the
region
comes
from
deposits,
which
CBDCs
would
directly
compete
with.
It
explained:
“Deposits
make
up
a
large
share
of
bank
funding
in
the
region,
about
83
percent.
Because
a
CBDC
may
compete
with
bank
deposits,
it
could
weigh
on
bank
profits
and
lending
and
have
implications
for
financial
stability.”
In:
Middle
East,
CBDCs
Go to Source
Author: Oluwapelumi Adejumo
