The Islamic states have been alerted by the International Monetary Fund (IMF) regarding potential challenges that local banking systems may encounter when introducing digital currencies of central banks.
According to IMF experts, the uneven development of Islamic banking and a limited number of credit institutions are hindering the progress of Islamic liquidity management tools, including the use of CBDC.
While some Middle Eastern countries have rapidly adopted digital assets, others such as Morocco and Algeria have banned them altogether.
The issuance of CBDCs presents challenges for traditional commercial banks with a European value system, as the principles of Islamic law prohibit usury and speculation.
Therefore, the usual interest-based liquidity management mechanisms are not acceptable for Islamic banks.
The IMF notes that only Iran and Sudan have fully Islamic banking systems, accounting for less than 2% of global finance, but the Islamic financial system is present in 34 countries and is of systemic importance in 15 jurisdictions.
The need to comply with Sharia requirements is a major obstacle for most Islamic states to bring pilot projects of CBDCs to practical testing.
In early March, the Central Bank of Iran announced the completion of the preliminary stage of testing its state digital currency and plans to integrate it into the country’s payment system.