IMF Advocates Central Bank Digital Currencies for Enhanced Middle East Payments

UAE, 20 June, 2024 : The International Monetary Fund (IMF) suggests that Central Bank Digital Currencies (CBDCs) could significantly improve financial inclusion and cross-border payments efficiency in the Middle East.

According to the IMF, approximately 19 countries in the Middle East and Central Asia are planning to issue CBDCs. While some are in the research phase, countries like the UAE, Saudi Arabia, Bahrain, Georgia, and Kazakhstan have progressed to the "proof-of-concept" stage or conducted pilot programs.

CBDCs have the potential to reduce transaction costs associated with cross-border payments, addressing current inefficiencies such as varying data formats and complex compliance checks, particularly crucial for oil exporters and GCC countries.

The IMF highlights that CBDC adoption can foster financial inclusion by enhancing competition in the payments market and enabling more direct transactions with fewer intermediaries, thereby lowering the costs of financial services.

Moreover, central banks can maintain lower costs compared to commercial lenders, as they are not profit-oriented, potentially speeding up remittance transfers and reducing costs.

However, the IMF notes potential risks, such as CBDCs competing with bank deposits, which constitute a significant portion of bank funding in the region. This competition could pressure bank profits and impact financial stability, although GCC banks generally maintain robust capital levels and liquidity buffers.

Regarding monetary policy, CBDCs could enhance the transmission of policy rates to deposit rates and strengthen the bank lending channel, although the specific impact would vary across countries due to limited CBDC adoption thus far.

Source : www.zawya.com