IMF Survey Indicates CBDCs Could Enhance Financial Inclusion and Payment Efficiency in the Middle East
A recent survey conducted by the International Monetary Fund (IMF) in the Middle East and Central Asian region has suggested that while central bank digital currencies (CBDCs) may not be indispensable, they have the potential to improve financial inclusion and reduce the cost of financial services. However, the IMF findings also highlight that the adoption of CBDCs must be accompanied by addressing other barriers in order to reap substantial benefits.
The survey, which involved 19 central banks in the Middle East and Central Asia region, found that CBDCs have the capacity to advance financial inclusion and enhance the efficiency of payment systems. Nevertheless, the IMF cautions that careful consideration is required when contemplating the adoption of a CBDC. The survey suggests that improving existing digital payment systems and addressing underlying constraints might prove to be a more practical alternative to CBDC implementation.
The IMF has been closely studying the evolution of CBDCs and providing guidance to member countries on their integration into national monetary systems. A senior IMF official has also pointed out that a global CBDC platform capable of enforcing capital controls could significantly reduce payment costs. Several nations in the Middle East and Central Asia region, such as Saudi Arabia, have already been exploring the use of CBDCs. For instance, the Saudi Arabian central bank recently participated in a cross-border CBDC experiment for international trade with the Bank for International Settlements (BIS). IMF Managing Director Kristalina Georgieva has previously expressed her belief that CBDCs could eventually replace cash in island economies.
The IMF survey concluded that the introduction of digital currencies is a complex and lengthy process that central banks must approach with caution. Policymakers need to assess whether a CBDC aligns with their country’s objectives and weigh the anticipated benefits against the potential costs, risks to the financial system, and operational risks for the central bank.
Additionally, the IMF issued a warning regarding the potential competition between CBDCs and bank deposits. Given that approximately 83% of funding for banks in the region comes from deposits, the presence of CBDCs could impact bank profitability and lending, thereby affecting the financial stability of a nation.
The survey further revealed that the 19 central banks in the region are exploring the issuance of CBDCs with a primary focus on enhancing financial inclusion and improving payment system efficiency. The specific areas of emphasis vary across different countries, including the need for more efficient domestic and cross-border payments in oil exporters and Gulf Cooperation Council countries, and the goal of expanding financial inclusion in oil importers, the Caucasus, Central Asia, and low-income countries.
The survey findings emphasized that without addressing other barriers like low digital and financial literacy, lack of identification, distrust of financial institutions, and low wealth, the benefits of CBDC adoption may only be marginal.
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