International Monetary Fund: CBDC supports financial inclusion in the Middle East and simplifies new ways for cross-border payments

A survey by the International Monetary Fund (IMF) shows that central bank digital currencies (CBDC) have significant potential benefits in the Middle East, especially in promoting financial inclusion and improving cross-border payments.

Currently, about two-thirds of Middle Eastern countries are actively exploring the issuance of their own digital currencies. Among them, Bahrain, Georgia, Saudi Arabia, and the United Arab Emirates have entered the proof-of-concept stage, and Kazakhstan has launched two digital currency pilot programs.

Potential benefits of CBDC in the Middle East

The International Monetary Fund (IMF) emphasized in its report that for a region like the Middle East, which has many oil exporting countries, establishing a seamless cross-border payment system is crucial. Cross-border payments in the Middle East currently face many challenges, including inconsistent data formats and differences in operational and compliance rules. The IMF believes that the introduction of CBDC can effectively solve these problems, reduce transaction costs, and improve payment efficiency.

The IMF further pointed out that CBDC can not only facilitate cross-border payments, but also significantly enhance financial inclusion in the Middle East. By promoting competition in the payments market, CBDC allows transactions to be settled more directly and with fewer intermediaries, which will lower the cost of financial services and make them more accessible to the masses. The IMF stated that CBDC issued by the central bank will help further reduce transaction costs because it is not for profit.

The IMF also mentioned that the intensified competition in the payment market brought about by CBDC may stimulate the upgrading of technology platforms and improvements in the efficiency of payment services. This improvement in efficiency will help financial services cover a wider range of people and promote the development of financial services throughout the region.

Challenges facing CBDC

Although CBDC has great potential in the Middle East, the IMF has warned that there are several challenges that may hinder the realization of its benefits.

These challenges include low levels of digital and financial literacy, lack of identification, distrust of financial institutions and low levels of wealth. These problems may limit the popularity and application of CBDC.

In addition, the IMF pointed out that CBDC may have an impact on the financial stability of the issuing country. In the Middle East, about 83% of bank funds come from deposits, and CBDC will directly compete with bank deposits.

Such competition could put pressure on bank profits and lending, affecting financial stability. Therefore, regulators need to fully consider and resolve these potential financial stability issues while promoting CBDC.

Conclusion

Overall, CBDC has great potential to improve financial inclusion and cross-border payments in the Middle East, but it also faces multiple challenges.

When exploring and developing CBDC, countries need to weigh its potential benefits and risks and adopt appropriate policies and measures to ensure that CBDC can bring positive impacts to regional financial development while maintaining financial stability.

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