CBDCs Could Advance Financial Inclusion: IMF Middle East Survey

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

The survey insights , released Tuesday, concluded that CBDCs could promote financial inclusion and enhance the efficiency of international remittances.

Out of those 19 countries surveyed, many are exploring CBDCs at its research stage. “Bahrain, Georgia, Saudi Arabia, and the United Arab Emirates have moved to the more advanced “proof-of-concept” stage,” the insights read. “Kazakhstan is the most advanced after two pilot programs for the digital tenge.”

Central Bank Digital Currency Role in Advancing Financial Inclusions

The findings noted that CBDCs fosters competition in the payments market and allows settlement of transactions with ease. This would in turn lower the cost of financial services and makes it more accessible.

However, the survey highlighted the risks associated with CBDCs, which unless addressed, would only give “marginal benefits.”

Potential barriers include low digital and financial literacy, lack of identification, distrust of financial institutions, and low wealth.

The IMF insights suggested that policymakers can mitigate potential risks to financial stability. Another challenge is selecting appropriate features for CBDC implementation, it stressed.

“While there are no clear prerequisites to adopting CBDCs, a healthy banking system, a sound legal system, and strong supervisory and regulatory capacity are the most important for reducing risks.”

IMF proposed that designing offline CBDCs could benefit less internet-accessible areas with increased financial inclusion. Additionally, using them for international transfers could help “lower the cost of sending remittances” and speed up the transfer.

IMF Helps Countries Explore CBDCs

IMF has been guiding central banks in exploring and developing CBDCs by establishing step-by-step guide to address the risks. It has been using the 5P methodology: preparation, proof-of-concept, prototypes, pilots, and production.

“We analyze how CBDCs would likely affect monetary policy,” IMF said in November 2023 . “We explain how CBDCs could be designed to facilitate cross-border payments while still managing capital flows.”

IMF noted that it would continue engaging with central banks, assessing the potential effects of these central bank digital money on areas from financial stability to cybersecurity and cross-border payments.