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CBDCs Could Advance Financial Inclusion: IMF Middle East Survey

The International Monetary Fund (IMF) has conducted a survey across 19 countries in the Middle East and Central Asia to assess the adoption and potential of central bank digital currencies (CBDCs).

According to the survey findings released on Tuesday, CBDCs have the potential to advance financial inclusion and improve the efficiency of international remittances.

Among the 19 countries surveyed, several are currently in the research phase of exploring CBDCs. The insights highlight that “Bahrain, Georgia, Saudi Arabia, and the United Arab Emirates have progressed to the more advanced ‘proof-of-concept’ stage.” Additionally, Kazakhstan has made significant strides with two pilot programs for its digital currency, the tenge.

Central Bank Digital Currency Role in Advancing Financial Inclusions

The findings highlighted that CBDCs encourage competition in the payments market and facilitate easy transaction settlements, potentially reducing the cost and enhancing accessibility of financial services.

However, the survey also underscored several risks associated with CBDCs that, if not addressed, could limit their benefits to marginal improvements. These risks include low levels of digital and financial literacy, inadequate identification systems, mistrust of financial institutions, and disparities in wealth.

According to the IMF insights, policymakers can mitigate these risks to ensure financial stability. A critical challenge identified is selecting appropriate features for CBDC implementation.

“While there are no definitive prerequisites for adopting CBDCs, a robust banking system, a sound legal framework, and effective supervisory and regulatory capabilities are crucial for minimizing risks,” the IMF emphasized.

The IMF further proposed that designing CBDCs for offline use could enhance financial inclusion in areas with limited internet access. Moreover, utilizing CBDCs for international transfers has the potential to “reduce the cost of remittances” and expedite transaction processing.

IMF Helps Countries Explore CBDCs

The IMF has been actively guiding central banks in their exploration and development of CBDCs through a structured approach known as the 5P methodology: preparation, proof-of-concept, prototypes, pilots, and production.

In a statement from November 2023, the IMF indicated, “We analyze how CBDCs would likely affect monetary policy. We explain how CBDCs could be designed to facilitate cross-border payments while still managing capital flows.”

The IMF emphasized its ongoing commitment to engage with central banks, continuously assessing the potential impacts of CBDCs on various aspects such as financial stability, cybersecurity, and the efficiency of cross-border payments. This engagement aims to support central banks in navigating the complexities and implications of adopting central bank digital currencies.

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