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

As an experienced analyst, I believe that the IMF survey on Central Bank Digital Currencies (CBDCs) in the Middle East and Central Asian region presents a nuanced perspective on the potential benefits and challenges of adopting these digital currencies. While CBDCs may not be essential for achieving policy goals, they can certainly advance financial inclusion and lower the cost of financial services. However, careful consideration is needed before implementing a CBDC, as underlying constraints and improving other digital payment systems might be more practical alternatives.

A recent IMF survey of 19 central banks in the Middle East and Central Asia (ME&CA) region suggests that central bank digital currencies (CBDCs) might not be necessary to accomplish their intended objectives.

As an analyst, I’ve reviewed the findings from the survey, which indicate that Central Bank Digital Currencies (CBDCs) have the potential to enhance financial inclusion and reduce service fees. Nevertheless, implementing a CBDC comes with significant considerations. The survey further suggests that addressing underlying constraints and enhancing existing digital payment systems could be more feasible options in comparison to adopting a CBDC.

The International Monetary Fund (IMF) has been studying the development of Central Bank Digital Currencies (CBDCs) and providing guidance to member countries on integrating them into their monetary systems. A top IMF official has remarked that a unified global CBDC platform could potentially reduce payment costs and enable capital controls. Several Middle East and Caribbean nations have investigated the implementation of CBDCs, with Saudi Arabia’s central bank participating in a cross-border experiment with the Bank for International Settlements (BIS). Previously, IMF Managing Director Kristalina Georgieva has suggested that CBDCs could eventually replace cash in insular economies.

In essence, the IMF report underlined that the adoption of central bank digital currencies (CBDCs) involves intricate procedures that require careful consideration by monetary authorities. They must assess whether a CBDC aligns with their national goals and if the advantages surpass the drawbacks, risks to the financial system, and operational challenges for the central bank.

The International Monetary Fund (IMF) has issued a caution that approximately 83% of banking funds in the specified region are sourced from deposits. Consequently, the implementation of Central Bank Digital Currencies (CBDCs) could potentially draw depositors away from traditional banks, leading to reduced profits and lending capacity for these financial institutions. As a result, this situation may adversely affect the overall financial stability of the respective nation.

The study revealed that among the 19 central banks in this region, there is growing interest in launching a central bank digital currency (CBDC). Their primary motivations seem to be improving financial accessibility for underbanked populations and streamlining payment systems.

In the case of Middle East and North African oil-exporting countries, such as those in the Gulf Cooperation Council, their focus lies primarily in enhancing the efficiency of both domestic and international transactions through advanced financial markets. On the other hand, for Middle Eastern and North African oil importers, as well as those in the Caucasus, Central Asia, and low-income nations, the main objective is to broaden financial inclusion.

The study indicated that the adoption of Central Bank Digital Currencies (CBDCs) might bring limited advantages unless issues such as inadequate digital and financial knowledge, absence of proper identification, skepticism towards financial establishments, and poverty are addressed.