## cbdcmecaea ## Source details **Canonical URL:** [cbdcmecaea](https://www.imf.org/-/media/files/publications/dp/2024/english/cbdcmecaea.pdf) ## Other formats - [Markdown version](/-/media/files/publications/dp/2024/english/cbdcmecaea.pdf.md) - [Structured JSON version](/-/media/files/publications/dp/2024/english/cbdcmecaea.pdf.json) --- ### Executive summary — key findings and messages - Context and scope: - CBDCs offer a digital alternative to cash and raise policy and operational issues requiring careful consideration. - Survey of IMF country teams: 19 central banks in the Middle East and Central Asia (ME&CA) are exploring issuing a CBDC; 7 have benefited from IMF capacity development on this topic. - ME&CA country priorities: - MENA oil exporters and GCC countries: priority is making domestic and cross-border payments more efficient. - MENA oil importers, CCA, and low-income countries: priority is expanding financial inclusion. - Framing questions for policymakers: - What objectives are sought with a CBDC? - Which payment-system inefficiencies can CBDCs address? - Implications for financial stability, monetary policy pass-through, and central bank operational risk? - How can CBDC design achieve objectives and mitigate risks? - Novel findings specific to ME&CA: - Financial inclusion: CBDCs could promote financial inclusion if they address payment-system inefficiencies; uptake may be limited without remedies to low digital and financial literacy, distrust in financial institutions, and low wealth. - Cross-border payments: CBDCs may improve efficiency if designed to address interoperability frictions, complex compliance checks, long transaction chains, and weak competition. - Financial stability: CBDCs may compete with bank deposits, potentially reducing bank profitability and lending volumes; ME&CA banking systems generally have adequate capital, profitability, and liquidity buffers to mitigate potential adverse impacts. - Monetary policy pass-through: CBDCs could strengthen pass-through into deposit rates by increasing competition; impact is country-specific and difficult to estimate. ### CBDC objectives and regional priorities - ME&CA CBDC objectives (surveyed country teams include Algeria; Armenia; Azerbaijan; Bahrain; Djibouti; Egypt; Georgia; Iran; Iraq; Jordan; Kazakhstan; Kuwait; Kyrgyz Republic; Lebanon; Libya; Mauritania; Morocco; Oman; Pakistan; Qatar; Saudi Arabia; Somalia; Sudan; Syria; Tajikistan; Tunisia; Turkmenistan; UAE; Uzbekistan; West Bank and Gaza; Yemen): - Enhancing financial inclusion and improving domestic and cross-border payment efficiency are identified as the main CBDC objectives. - Most ME&CA countries interested in financial inclusion are primarily interested in retail CBDCs; the paper focuses on retail CBDCs. - Regional digital and payment metrics: - Adult bank account ownership ranges from 6 percent (Sudan) to 90 percent (Islamic Republic of Iran). - Smartphone penetration in ME&CA reached 88 percent in 2021. - Digital payment usage in 2021: Islamic Republic of Iran 85 percent; Saudi Arabia 73 percent; United Arab Emirates 77 percent; Iraq 14 percent; Afghanistan 8 percent. - Cash-in-circulation examples: Iraq about 26 percent of GDP in 2021; Mauritania about 26 percent of GDP in 2020; GCC cash-in-circulation averaged 5.4 percent of GDP in 2021. - Remittance flows to ME&CA countries reached $447 billion in 2021. - IMF engagement and capacity development: - As of February 2023, seven ME&CA countries had received IMF capacity development on CBDC. - The IMF released five chapters of the CBDC Virtual Handbook in November 2023 and plans about 20 chapters over the next five years. - IMF capacity development objectives include understanding CBDC uses, designs, costs, suitability, testing stages, and accompanying policies and regulations. ### Payment systems, cross-border remittances, and CBDC benefits - Payment-system frictions and CBDC operational features: - Frictions: fragmented data formats; complex compliance checks; limited operating hours; lack of payment system interoperability; legacy platforms leading to multiple intermediaries and lack of payment finality. - CBDC benefits: could simplify intermediation chains; operate 24/7; be designed from a “clean slate” for interoperability and real-time payments. - Regional initiatives to improve cross-border payments: - GCC RTGS: connects domestic RTGS payment systems of six GCC central banks to enable efficient intra-GCC payments in the fiat currencies of the six countries. - Arab Regional Payment System (BUNA): central routing agent led by the Arab Monetary Fund; “live” with Emirati dirham, Egyptian pound, Saudi riyal; aims to augment currencies and provide instant real-time pan-regional payments. - Developmental impact: - CCA and MENA oil-importing economies with high reliance on cash could gain from cheaper, faster remittances and improved domestic and cross-border payment systems. ### Financial systems context relevant for CBDC design and stability - Banking system size and composition: - Banks’ total assets reached $2.4 trillion in 2021 (185 percent of GDP), up from $1.7 trillion in 2016 (149 percent of GDP). - For 2021, assets to GDP for other emerging markets = 74 percent of GDP. - In the GCC, banks’ lending to GDP reached $2.7 trillion (198 percent of non-oil GDP) at end-2021. - Bahrain banking assets to non-oil GDP = 552 percent; Saudi Arabia = 100 percent. - Funding and asset composition: - Demand deposits constitute around 83 percent of funding for banks in ME&CA in 2021. - Wholesale funding is 5 percent of total funding (3 percent in CCA; 6 percent in MENAP). - Loans account for the bulk of banking assets; GCC loans > half of assets; average annual loan growth ~6 percent during 2014–20. - Concentration, ownership, and profitability: - Top four banks held about 72 percent of total assets in 2021 (other emerging markets = 65 percent). - Government ownership of banks prevalent: about 50 percent in Egypt and Saudi Arabia; Pakistan 28 percent in 2021. - Average return on equity in region = 14 percent in 2021 (emerging market average = 12 percent); range: 20 percent in CCA to 10 percent in MENAP. - Net interest income accounts for 60 percent of banks’ income; non-interest income ~12 percent in 2021. - Liquidity: - Excess liquidity in GCC ~31 percent of assets in 2021; MENAP = 7.3 percent; CCA = 5.2 percent. - Vulnerabilities: - Sovereign bond holdings >40 percent of total banking assets in Egypt and Pakistan. - Nonperforming loan ratios: CCA declined from over 13 percent in 2018 to 7 percent in 2021; GCC roughly 4 percent in 2021 (Saudi Arabia 2 percent; United Arab Emirates ~7 percent). - Foreign deposit exposure notable in Qatar and UAE. ### Financial stability implications and bank responses - Principal risks: - Remunerated CBDC could induce deposit outflows, reduce bank profitability, and raise funding costs. - CBDCs could be perceived as a safe haven during turmoil, increasing run/liquidity risks. - Bank responses to deposit outflows: - Increase deposit remuneration; raise wholesale funding; increase central bank financing; raise equity; shrink balance sheets. - Preconditions and mitigants: - Adequate deposit insurance, central bank liquidity provision, and strong capital and liquidity buffers are important preconditions. - Monitoring distributional effects across banks is crucial because aggregate metrics may mask individual vulnerabilities. - Operational and reputational risks: - Central banks must manage privacy, cyberattacks, AML/CFT compliance, outsourcing risks, and reputational risks tied to implementation cost and uptake. ### Model simulations — setup, parameterization, and main findings - Model scope and calibration: - A small structural model (Gross and Letizia 2023) simulates unremunerated CBDC adoption for three representative ME&CA countries: Tunisia (emerging market), Qatar (developed financial system, low cash share), and Georgia (CCA, high cash usage, elevated dollarization). - Calibration targets: deposit rate and cash ratio by selecting optimal number of banks and base utility of cash (Annex Table 5.1). - Key parameter values (Annex Table 5.1): - Number of Banks В: Tunisia = 6, Qatar = 11, Georgia = 15. - Base Utility for Cash α_CASH: Tunisia = 2.6, Qatar = 2.2, Georgia = 2.1. - Price Sensitivity β: Tunisia = 55, Qatar = 14, Georgia = 025. - Velocity of Money γ: Tunisia = 0.3609, Qatar = 1.362. - Reserve Requirement λ: Tunisia = 1%, Qatar = 4.5%, Georgia = 5%. - Reserve Borrowing Rate ι̇_RB: Tunisia = 6.5%, Qatar = 3.41%, Georgia = 10.5%. - Reserve Remuneration Rates [ι̇_RRH, ι̇_ERH]: - Tunisia = [0.29%, 1.75%] - Qatar = [0%, 3.41%] - Georgia = [10.5% , 10.5%] - Model targets (Annex Table 5.2): - Deposit Rate: Tunisia = 4 .12 %, Qatar = 2. 51%, Georgia = 5.03%. - Cash Ratio (cash/M2): Tunisia = 18.69%, Qatar = 2.18 %, Georgia = 22.45%. - CBDC attainment and money shares (model main findings): - Unremunerated CBDCs attain a share between 1 and 10 percent of total money across three country cases in earlier simulations. - In parameterized model: - Cash-like CBDC attainment: - Georgia: close to 10 percent of total money. - Tunisia: close to 10 percent of total money. - Qatar: about 1.1 percent of total money (baseline cash-to-M2 ratio in Qatar = 2.18 percent). - Checking account–like unremunerated CBDC attainment: - Georgia: 3.5 percent of total money. - Tunisia: 3.5 percent of total money. - Qatar: 0.3 percent of total money. - With positive remuneration or deposit-like CBDC, shares could rise: - Georgia = 30 percent; Tunisia = 25 percent (model sensitivity). - Impact on deposits and bank profitability: - Deposit-like CBDC reduces deposits: Georgia and Tunisia deposits decline by about one-third; Qatar maximum deposit outflows ~26 percent. - Banks compensate by increasing reserve borrowings; up to one-third of bank funding could come from reserve borrowings in deposit-like fully remunerated scenarios. - Systemwide RoA changes: - Tunisia: RoA would decline by 0.4 percentage point. - Georgia: RoA would decline by 0.5 percentage point. - Qatar: RoA would decline by 0.2 percentage point. - Aggregate bank-level capitalization remains unaffected in model; individual weak banks could be adversely affected. - Central bank seigniorage: - Cash-like CBDC unambiguously lowers seigniorage; decline increases with remuneration rate. - Deposit-like CBDC effect on seigniorage is hump-shaped: - Low remuneration rates (25–50 percent of the policy rate): seigniorage slightly increased. - As CBDC remuneration approaches 100 percent of the policy rate: expenses on CBDC outweigh reserve lending revenue. - Potential peak seigniorage declines: - Georgia and Tunisia = up to 90 percent. - Qatar = around 25 percent. - Monetary policy pass-through (model results): - Baseline pass-through (policy rate → banks’ funding costs) remains: - Georgia ≈ 70 percent; Qatar ≈ 75 percent; Tunisia ≈ 72 percent in unremunerated scenarios. - An unremunerated CBDC has no measurable impact on pass-through in the three country cases. - A remunerated CBDC strengthens pass-through: increases banks’ cost of funding by between 7 and 10 additional basis points for a 100 basis point increase in the policy rate. - Design sensitivity: caps on holdings reduce impact on pass-through; foreign access alters capital flow and exchange rate considerations. - Model limitations and suggested extensions: - Loan rates fixed ex ante; bank-level heterogeneity beyond RoA not modeled. - Exchange rate channel and bank lending channel not explicitly modeled. - Wholesale funding and nonbank sectors small in the model context. - Suggested extensions include richer deposit contracts, endogenous loan-rate adjustment, network effects, and analysis of dollarization and cross-border spillovers. ### Country case findings and operational design choices - Georgia (digital lari pilot): - Operating model: intermediated two-tier system; private permissioned DLT under consideration. - Monetary pass-through baseline coefficients: 0.64, 0.66, 0.68, 0.70, 0.72, 0.74. - Macrofinancial parameters: - Cash share = 22.5 percent. - Deposit dollarization = 55 percent in 2022. - Loan dollarization = 40 percent in 2022. - Deposit rates = 5.03 percent. - Policy rate at end-2021 = 10.5 percent. - Price sensitivity of deposits β = 25. - Banking concentration: top four banks cover 85 percent of market. - 80 percent of banks’ nonequity funding comes from deposits. - Results and exact figures: - Deposit-like CBDC remunerated at policy rate → deposit rate rises from 5.03 percent to about 6 percent. - Borrowing from central bank increases by 4 billion lari under deposit-like remunerated CBDC scenarios. - Deposit expenses fall from 0.6 to 0.4 billion lari; reserve borrowing expenses rise by 0.4 billion lari; implied reduction in net income of 0.2 billion lari (~37 percent). - Systemwide RoA drops from about 3.4 percent to 2.9 percent. - Baseline pass-through ~70 percent; deposit-like full remuneration increases pass-through to about 79 percent. - Seigniorage: could fall from about 0.5 billion lari to close to zero in worst-case cash-like fully remunerated scenario. - Tunisia: - Banking structure: - Deposits account for 92 percent of nonequity funding. - Deposit-lending spread = 2.7 percent. - Top four banks’ asset share = 53 percent. - Estimated number of banks B = 6. - CBDC adoption potential and figures: - Cash-like CBDC could account for up to 18 percent of total money; unremunerated cash-like ~9 percent. - Deposit-like CBDC could capture up to 25 percent. - Broad CBDC adoption bounds: 2 to 30 percent share in total money depending on design. - Bank funding and profitability impacts: - Fully remunerated deposit-like CBDC → deposits decline by about one-third (from ~75 billion Tunisian dinar to ~50 billion Tunisian dinar). - Deposit rate increases slightly from 4.1 percent to 4.2 percent. - Additional central bank borrowing in fully remunerated deposit-like scenario = 20 billion Tunisian dinar. - Reduction in deposit expenses up to 1 billion Tunisian dinar; increase in reserve borrowing expenses up to 1.5 billion Tunisian dinar; reduction in net income up to 500 million Tunisian dinar (from 1.6 billion Tunisian dinar). - RoA declines from 1.6 percent to 1.2 percent in most impactful scenario. - Seigniorage decline: up to 35 percent (deposit-like), up to 90 percent (cash-like); fully remunerated deposit-like CBDC leads to decline by more than 200 million Tunisian dinar. - Monetary policy pass-through could increase from 0.72 to 0.82. - Qatar: - Baseline cash-to-M2 ratio = 2.18 percent. - Unremunerated cash-like CBDC attainment ≈ 1.1 percent of total money; checking account–like ≈ 0.3 percent. - Modeled RoA decline ≈ 0.2 percentage point under scenarios considered. ### Annex country case highlights (Jordan, Kazakhstan, Libya) - Jordan: - IMF technical assistance since late 2021 for CBDC exploration; objectives: promote financial inclusion; improve domestic and cross-border payment efficiency; improve banking competitiveness; reduce illicit activity. - Existing interoperability: JoMoPay and CliQ; Buna participation and MoU for interoperability between Buna and CliQ. - Barriers: limited financial literacy, transaction fees, persistent “cash culture.” - Risks: financial disintermediation if improperly designed; liquidity/systemic risk in stress; exchange rate volatility if cross-border retail CBDC accessible to foreigners; cyberattack risk. - CBJ next steps: proof of concept for wholesale CBDCs and further feasibility analysis. - Kazakhstan: - DT exploration since 2021; token-based retail currency on DLT in a two-tier hybrid model in 2021 project. - Stated objectives: promote competition among second-tier banks, financial innovation, wider payment services including offline payments. - NBK responsibilities include issuing tokens to second-tier banks and maintaining distributed ledger; second-tier banks handle retail distribution and AML/CFT. - NBK studies suggest demand limited: demand estimated at about 10–20 percent of available funds; nonremunerated DT demand ~5–6 percent of GDP. - Expected full launch by end-2025 with gradual expansion. - Libya: - Fragmented payment landscape with eastern branch operating parallel systems; CIC >30 percent of broad money. - Between 2018 and 2022: POS terminals rose from 5,000 to 27,000; automated check clearing volume tripled to LYD65 billion; active cards rose from 0.5 to over 1.2 million. - Potential CBDC benefits: speed digitization, reduce CIC, lower AML/CFT risks via traceability and offline capability, increase digital payments if used for wages/benefits, programmable subsidies. - Risks: bank disintermediation and low public take-up; credit to GDP ~11 percent; ~60 percent of bank assets are liquidity held with CBL. - Enabling factors: reserves >48 months of imports; mobile phone usage ~120 percent; median age 29 years. - IMF can assist with legal, technical, and financial stability assessments. ### Design considerations and policy advice - Design features matter for achieving objectives and mitigating risks: - Zero remuneration and low balance/transaction limits can limit financial disintermediation; tiered wallets suggested to balance privacy and integrity. - Offline-capable CBDCs could be key for financial inclusion in areas with low connectivity (relevant for LICs and FCSs). - Enabling CBDCs for cross-border transfers can reduce remittance costs and speeds. - Programmability could improve targeted transfers but may pose risks to fungibility and trust. - Policy recommendations and caveats: - CBDC issuance and adoption is a long journey; policymakers must analyze whether a CBDC serves objectives and whether benefits outweigh costs, financial-system risks, and operational risks. - No clear prerequisites, but essential: healthy banking system, sound legal basis, strong supervisory and regulatory capacity. - Alternatives (improving other digital payment systems) may achieve intended goals. - IMF role: capacity development, surveillance support, technical assistance for cross-border payments, and peer learning platforms. *Source: cbdcmecaea — IMF Departmental Papers • Central Bank Digital Currencies in the Middle East and Central Asia.* ### references. ### References ### Acknowledgments - Prepared under the general guidance of Ali Al-Eyd, Jihad Azour, and Subir Lall. - Team led by Serpil Bouza and Borislava Mircheva; team members: Bashar Hlayhel, Thomas Kroen, Greta Polo, and Sahra Sakha (Middle East and Central Asia Department); Marcello Miccoli (Monetary and Capital Markets Department); Yang Yang (European Department). - Additional acknowledgements: Ran Bi and Joyce Wong (Middle East and Central Asia Department); Tokhir Mirzoev (Strategy, Policy, and Review Department); Middle East and Central Asia Department country teams (survey participants); Shafiq Ghawi and Gregorio Impavido (country case study contributors); Marco Gross (Monetary and Capital Markets Department) for sharing model and codes. - Editing, production, and publication support: Bronwen Brown (editing), Nataliya Bondar and Helida Graca (production assistance), Lorraine Coffey (Communications Department) (overseeing publication process). - Acknowledged helpful comments from IMF departments and Executive Director offices. - Note: The Departmental Paper Series presents IMF staff research; views are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. - Publication orders contact: - International Monetary Fund, Publication Services, P.O. Box 92780, Washington, DC 20090, U.S.A. - T. +(1) 202.623.7430 - publications@IMF.org - IMFbookstore.org - elibrary.IMF.org ### Identifiers and Classification - ISBN: - 9798400263798 (paper) - 9798400264108 (ePub) - 9798400264023 (WebPDF) - Subjects (LCSH): Finance—Technological innovations—Middle East. | Finance—Technological innovations—Central Asia. - Classification (LCC): HG173.B6 2024 ### Contents (document structure overview) - Acronyms and Abbreviations - Executive Summary - 1. Introduction - 2. CBDC Objectives - 3. Payment Systems and Benefits of CBDC in ME&CA - A. Financial Inclusion and Payment Systems in ME&CA - B. Benefits of CBDCs in ME&CA - 4. Financial Systems and Financial Stability Implications of CBDCs in ME&CA - A. ME&CA Financial Systems - B. Financial Stability Implications of CBDCs - 5. CBDC Design - A. Operating Model - B. Technological Choices - C. Safeguard Options for Financial Stability and Integrity - D. Cross-Border Considerations - E. Legal Underpinnings - F. Mitigating Operational and Reputational Risk - 6. Conclusion - Annexes: - Annex 1. Middle East and Central Asia Department Survey - Annex 2. Defining CBDCs - Annex 3. Main Objectives for Adopting CBDCs - Annex 4. Middle East and Central Asia Department Case Studies (Jordan; Kazakhstan; Libya) - Annex 5. Model Overview and Estimates (Model Description; Model Parameterization; Model Main Findings) - References - Boxes: Box 1. Capacity Development on Central Bank Digital Currencies; Box 2. Improving Cross-border Payment Systems - Figures and Tables: listed Figures 1–18 and Tables 1–2 (titles preserved in contents listing) ### Acronyms and Abbreviations (selected) - AML anti–money laundering - CBDC central bank digital currency - CBJ Central Bank of Jordan - CBL Central Bank of Libya - CCA Caucasus and Central Asia - CIC cash in circulation - CFT combating the financing of terrorism - DLT distributed ledger technology - DT digital tenge - FCS fragile and conflict-affected state - GCC Gulf Cooperation Council - LIC low-income country - ME&CA Middle East and Central Asia - MENA Middle East and North Africa - MENAP Middle East, North Africa, Afghanistan, and Pakistan - NBK National Bank of Kazakhstan - PSP payment service provider - RoA return on assets - RTGS real-time gross settlement ### Executive Summary — Key findings and messages - Context and scope: - CBDCs offer a digital alternative to cash and raise policy and operational issues requiring careful consideration. - Survey of IMF country teams: 19 central banks in the Middle East and Central Asia (ME&CA) are exploring issuing a CBDC; 7 have benefited from IMF capacity development on this topic. - ME&CA country priorities: - In Middle East and North Africa oil exporters and GCC countries: priority is making domestic and cross-border payments more efficient. - In Middle East and North Africa oil importers, the Caucasus and Central Asia, and low-income countries: priority is expanding financial inclusion. - Framing questions for policymakers: - What objectives are sought with a CBDC? - Which payment-system inefficiencies can CBDCs address? - Implications for financial stability, monetary policy pass-through, and central bank operational risk? - How can CBDC design achieve objectives and mitigate risks? - Novel findings specific to ME&CA: - Financial inclusion: - CBDCs could promote financial inclusion if they address inherent payment-system inefficiencies. - ME&CA: low access to bank accounts, underserved population segments, high reliance on cash (including for remittances, particularly in low-income MENA countries). - CBDCs offered at lower cost than existing alternatives could spur payment-market competition, increase account access, improve financial inclusion, and update legacy platforms. - Uptake may be limited without remedying barriers (low digital and financial literacy, distrust in financial institutions, low wealth). - Cross-border payments: - CBDCs may improve efficiency if designed to address interoperability frictions, complex compliance checks, long transaction chains, and weak competition. - Some ME&CA countries are launching new cross-border technology platforms to promote digital currency payments. - Financial stability: - CBDCs may compete with bank deposits, potentially reducing bank profitability and lending volumes for banks relying heavily on deposits. - ME&CA banking systems generally have adequate capital, profitability, and liquidity buffers to mitigate potential adverse impacts. - Small structural model applied to three representative ME&CA economies finds: - CBDCs could reduce the share of cash, especially in cash-reliant ME&CA economies (e.g., Caucasus and Central Asia; Middle East, North Africa, Afghanistan, and Pakistan). - Limited impact on deposits and profitability for commercial banks, partly due to relatively higher concentration of ME&CA banking systems. - Importance of monitoring the distributional effects across banks. - No clear prerequisites for adopting CBDCs; essential prerequisites include a healthy banking system, sound legal basis, and strong supervisory and regulatory capacity. - Monetary policy pass-through: - CBDCs could strengthen monetary policy pass-through into deposit rates by increasing competition and reducing banking system market power. - CBDCs could strengthen the bank lending channel of monetary policy. - Impact is country-specific and difficult to estimate due to limited CBDC uptake. - Design considerations: - Careful CBDC design can help achieve objectives, address payment-system inefficiencies, and mitigate negative implications. - Examples: - Offline-capable CBDCs could be fundamental to achieving financial inclusion in areas with low data connectivity (relevant for low-income and fragile/conflict-affected ME&CA economies). - Enabling CBDCs for cross-border transfers could reduce costs and increase remittance speed. - Policy advice and caution: - CBDC issuance and adoption is a long journey; policymakers must analyze whether a CBDC serves their objectives and whether benefits outweigh costs, financial-system risks, and operational risks. - Debate on CBDC implications for the financial system, monetary policy, and the economy is ongoing and requires further research. - Alternative solutions (improving other digital payment systems) may achieve intended goals. - Policymakers should define and communicate CBDC objectives clearly. - IMF offers capacity development and surveillance support to evaluate CBDC needs and establish policies and frameworks to minimize adverse implications. ### 1. Introduction — Selected context and data points - Digital transformation context: - Digital technologies advanced rapidly; COVID-19 accelerated the pace (Abidi, El-Herradi, and Sakha 2023). - Governments adopting digitalization strategies to transform public services. - CBDC definition: - A CBDC is a digital liability of the central bank used as a means of payment by the population (retail) or financial institutions (wholesale). - Global and regional status: - As of October 2023, 130 countries (representing 98 percent of global GDP) were exploring a CBDC (Kosse and Mattei 2022). - Of the countries that have fully launched a CBDC: Anguilla; The Bahamas; the Eastern Caribbean Central Bank (comprising seven Caribbean countries); Jamaica; and Nigeria — all retail CBDCs. - China’s pilot CBDC is reaching 260 million people and includes wholesale and retail capabilities. - As of December 2022, all Group of Seven economies had moved into the development stage of a CBDC. - Project examples: New York Federal Reserve’s wholesale CBDC, Project Cedar, shifted from research to development (Lipsky and Kumar 2022). - Survey of IMF country teams covering 31 ME&CA economies: 19 countries are considering or exploring a CBDC (details in Annex 1). - Figures referenced (titles preserved): - Figure 1. Digital Ecosystems in ME&CA (Mobile Cellular Subscriptions; Internet Users) - Figure 2. Broadband Ecosystem in ME&CA (Per 100 inhabitants) *International Monetary Fund. cbdcmecaea - references. Source PDF: cbdcmecaea - references.* ### 1. Fixed Broadband Subscriptions ### 1. Fixed Broadband Subscriptions ### Data definitions and figure notes - "Fixed broadband subscriptions" refers to fixed subscriptions to high-speed access to the public internet (a TCP/IP connection) at downstream speeds equal to or greater than 256 kbits per second. - "Active mobile broadband subscriptions" refers to the sum of active handset-based and computer-based (USB/dongles) mobile broadband subscriptions that allow access to the internet. - AE = advanced economy; CCA = Caucasus and Central Asia; EM = emerging market; GCC = Gulf Cooperation Council; ME&CA = Middle East and Central Asia; MENA = Middle East and North Africa; OE = oil exporter; OI = oil importer. - Data labels in the figure use International Organization for Standardization (ISO) country codes. CBDC = central bank digital currency; ME&CA = Middle East and Central Asia. - Sources: International Telecommunication Union; and IMF staff calculations. Additional source: IMF desk survey. ### ME&CA countries' CBDC interest and development stages - Many ME&CA countries are at the research stage for CBDCs; a few are at the proof-of-concept stage: Bahrain, Georgia, Saudi Arabia, United Arab Emirates. - Kazakhstan has initiated two pilots of the digital tenge (DT). - The region’s fragile and conflict-affected states (FCSs) and low-income countries (LICs) have expressed limited interest. - Three country case studies are mentioned as available for Jordan, Kazakhstan, Libya (each at different stages of CBDC exploration). ### CBDC policy objectives in ME&CA - Enhancing financial inclusion and improving domestic and cross-border payment efficiency are identified as the main CBDC objectives in the ME&CA region. - Most ME&CA countries interested in financial inclusion (example: Azerbaijan, Kyrgyz Republic) are primarily interested in retail CBDCs; the paper focuses on retail CBDCs. - A few countries are exploring wholesale CBDCs with local commercial banks and fintech partners (example: Saudi Arabia). ### Key policy questions for CBDC exploration - What objectives do policymakers aim to achieve with a CBDC? - Which inefficiencies in payment systems can CBDCs address? - What are the implications of CBDC issuance for financial stability, monetary policy pass-through, and central bank operational risk? - How can CBDC design help achieve policy objectives and mitigate these risks? ### IMF engagement and capacity development on CBDCs - The IMF has been helping authorities evaluate CBDC needs and establish policies and regulatory frameworks through capacity development. - As of February 2023, seven ME&CA countries had received IMF capacity development on CBDC. - The IMF released five chapters of the CBDC Virtual Handbook in November 2023 and plans about 20 chapters over the next five years, with updates and additional chapters to be published (a second set in 2024). Chapter topics include decision-making frameworks, product development methodology, and implications for financial inclusion, monetary policy transmission, and capital flow management measures. - The IMF’s capacity development objectives for countries include enabling them to: - understand CBDC uses, designs, ecosystem, and trade-offs; - understand capacity, processes, and cost requirements for exploring and implementing CBDCs; - evaluate CBDC suitability given country-specific goals, challenges, capacities, and payment and financial sector characteristics; - plan and test stages of CBDC exploration, including prototypes and trials; - design accompanying policies and regulations to promote financial inclusion and integrity; and - understand and prepare for potential effects of their own or another country’s CBDC on their economy. - More than 30 bilateral capacity development and regional workshops have taken place, with a quarter focused on Middle East and Central Asia countries. In June 2023, the IMF and Morocco co-hosted a high-level policy discussion on CBDCs for ME&CA countries. - The IMF participates in international working groups (G20 and G7) studying CBDC use for cross-border transfers and has developed an approach with the World Bank to provide technical assistance for cross-border payments. ### CBDC objectives by country group (survey findings) - Survey of IMF ME&CA country teams identifies enhancing financial inclusion and payment system efficiency as top priorities. Country teams surveyed include: Algeria, Armenia, Azerbaijan, Bahrain, Djibouti, Egypt, Georgia, Islamic Republic of Iran, Iraq, Jordan, Kazakhstan, Kuwait, the Kyrgyz Republic, Lebanon, Libya, Mauritania, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tajikistan, Tunisia, Turkmenistan, the United Arab Emirates, Uzbekistan, West Bank and Gaza, and Yemen. - Table 1 summary (key objectives by country group): - MENA Oil Exporters: Making Payments More Efficient (cross-border) ✓✓; Making Payments More Efficient (domestic) ✓✓ - MENA Oil Importers: Making Payments More Efficient (cross-border) ✓✓; Making Payments More Efficient (domestic) ✓✓ - Caucasus and Central Asia: Broadening Access to Payments ✓✓; Increasing Financial Inclusion ✓✓ - Low-Income Countries: Broadening Access to Payments ✓ - Gulf Cooperation Council Countries: Making Payments More Efficient (cross-border) ✓✓; Making Payments More Efficient (domestic) ✓✓ - Fragile and Conflict-Affected States: Broadening Access to Payments ✓✓; Increasing Financial Inclusion ✓✓ - Emerging Markets: Making Payments More Efficient (cross-border) ✓✓; Making Payments More Efficient (domestic) ✓✓ ### Payment systems, inclusion metrics, and potential CBDC benefits in ME&CA - Account ownership and digital payment adoption: - The percentage of the adult population with bank accounts ranges from 6 percent in Sudan to 90 percent in the Islamic Republic of Iran. - Smartphone penetration in ME&CA reached 88 percent in 2021. - Within MENA, digital payment usage in 2021: Islamic Republic of Iran 85 percent, Saudi Arabia 73 percent, United Arab Emirates 77 percent; Iraq 14 percent, Afghanistan 8 percent. - Saudi Arabia aims to have 70 percent of the nation’s transactions handled digitally by 2030 under Vision 2030. - Cash reliance: - Cash in circulation is particularly high in the region’s LICs and FCSs; example cash-in-circulation shares: Iraq about 26 percent of GDP in 2021, Mauritania about 26 percent of GDP in 2020. - GCC cash-in-circulation averaged 5.4 percent of GDP in 2021. - Informality and retail electronic transactions: - The informal sector generates about one-third of GDP and employs about 65 percent of the labor force in the region. - Only about one-third of retail transactions are conducted electronically in the region. - Remittances: - Remittance flows to ME&CA countries reached $447 billion in 2021. - Cash remains the dominant instrument for remittances; the most common way to send and receive domestic remittances is still by another person using cash. - The cost of remittances from the MENA region to receiving countries is below the global and sub-Saharan Africa averages. - Reasons for not holding an account (percent of adults reporting): - Insufficient funds; Financial services are too expensive; Financial institutions are too far away; Religious reasons; Someone in the family has one; Lack of necessary documentation; Lack of trust in financial institutions. ### How CBDCs can address ME&CA gaps - Financial inclusion: - CBDCs can create more competition for consumers and allow transactions to be settled more directly through reduced intermediation, thereby lowering the cost of financial services and making them more accessible. - Unlike commercial bank deposits, CBDCs are liabilities of the central bank and could constitute legal tender; they can be accessed by individuals and firms (retail CBDCs) or select financial institutions (wholesale CBDCs). *Source: cbdcmecaea - 1. Fixed Broadband Subscriptions (IMF departmental paper content provided in the input).* ### 1. Remittances Flows ### 1. Remittances Flows ### Remittances and Potential Role of CBDCs - CBDCs have the potential to lower remittance costs and advance financial inclusion in ME&CA by: - Reducing fees if CBDC issuance is fee-based and not profit-motivated by the central bank. - Providing central bank money with legal tender status that can help overcome distrust in financial services and broaden access. - Providing technological infrastructure from scratch (a “clean slate”) where it does not already exist, a public good particularly relevant for LICs and FCSs with high shares of underserved populations. - CBDCs could help enhance service quality for payment service providers (PSPs) and spur innovation by: - Simplifying market entry for PSPs. - Removing the need for negotiations to access specific payment infrastructures and banking services. - Enabling risk-based, fair, and transparent access to critical payment infrastructures (similar effects can be achieved through policy reforms that enable nonbank entities to access central bank accounts). - Caveats and limits: - CBDCs are not a panacea; some benefits could be achieved through other means, such as facilitating entry of new players, comprehensive regulation and supervision, and improved access to central bank accounts by PSPs. - CBDCs may not overcome existing barriers to financial inclusion tied to limited identification and financial literacy, low wealth, and high informality, which are associated with a strong preference for physical cash. ### Payment Systems and Cross-Border Remittances - Payment system frictions that raise costs include: - Fragmented and truncated data formats across regions. - Complex processing of compliance checks. - Limited operating hours across jurisdictions. - Lack of payment system interoperability (due to differences in domestic legislation). - Legacy technology platforms leading to multiple intermediaries (correspondent banking) and lack of payment finality. - CBDC operational features and benefits for payments: - Could simplify intermediation chains. - Would operate on a 24/7 basis, increasing availability. - Could be designed from a “clean slate” for interoperability and real-time payment service (BIS, IMF, and World Bank 2021). - Wholesale CBDCs (example: mBridge project led by the United Arab Emirates) aim to resolve cross-border inefficiencies. - Developmental impact: - By improving efficiency of cross-border payments, CBDCs could enable remittance flows that support economic development and financial inclusion. - CCA and MENA oil-importing economies, given high reliance on cash (including for remittances), could reap significant gains from improved domestic and cross-border payment systems: cheaper and more accessible remittances will benefit senders and recipients, help buffer economic shocks, and stimulate growth. ### Regional Initiatives to Improve Cross-Border Payment Systems (Box 2) - Gulf Cooperation Council (GCC) Real-Time Gross Settlement System (RTGS) - Led by the six central banks of the GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates). - What will it do? The GCC RTGS will provide an overarching regional payment system connecting the individual domestic RTGS payment systems of each of the six GCC countries, enabling an efficient delivery of intra-GCC payments in the fiat currencies of the six countries. For example, a Saudi riyal payment originated in the United Arab Emirates and destined for a beneficiary in Saudi Arabia would occur over the domestic United Arab Emirates and Saudi Arabian payment systems, instead of relying on bilateral correspondent banking frameworks. - What are the benefits? The GCC RTGS would create standardization, drive efficiency, bring predictability, and reduce costs, as cross-border payments would previously be delivered using domestic payment system architecture. This would bring the experience of a pan-regional cross-border payment closer to that of a domestic payment. - Arab Regional Payment System (known as BUNA) - Led by the Arab Monetary Fund. - What will it do? The system aims to create a central routing agent to provide a standardized payment experience across the Arab countries. With a common set of operating rules and a standardized SWIFT platform, BUNA would bring together the markets of the GCC and the Middle East and North Africa for all intraregional payments, covering not just the fiat currencies of the Arab countries but also key principally traded currencies such as the US dollar and euro. - What are the benefits? Already “live” with the Emirati dirham, Egyptian pound, and Saudi Arabian riyal, BUNA is looking to augment currencies, countries, and commercial bank participation over the near to medium term to provide efficiency and standardization to intraregional cross-border payments. Soon, BUNA aims to enhance the platform further by introducing instant and real-time delivery of pan-regional cross-border payments and providing the foundation to support other financial market infrastructure. ### Financial Systems Context Relevant for CBDC Design and Stability - ME&CA financial systems are primarily bank-dominated. - Banking system size and trends: - Banks’ total assets reached $2.4 trillion in 2021 (185 percent of GDP), up from $1.7 trillion in 2016 (149 percent of GDP). - For 2021, the share of assets to GDP for other emerging markets amounts to 74 percent of GDP. - In the GCC, banks’ lending to GDP reached $2.7 trillion (or 198 percent of non-oil GDP) at the end of 2021. - Country examples: Bahrain ranks first with a ratio of banking system assets to non-oil GDP of 552 percent; Saudi Arabia has a ratio of 100 percent. - Regional heterogeneity: - CCA financial sectors are relatively small and underdeveloped; Georgia has the largest banking sector in the region and is close to the global average of emerging markets. - Azerbaijan, Kazakhstan, and Uzbekistan have relatively small banking sectors, less than half the size of the average banking sector in the region. - MENAP banking sectors are heterogeneous; Jordan and Morocco have the largest banking sectors in the subregion. Pakistan’s banking sector is relatively small (47 percent of banking system assets to GDP). - Funding and asset composition: - Demand deposits constitute around 83 percent of funding for banks in the ME&CA region in 2021. - Wholesale funding is low in the region at 5 percent of total funding (ranging from 3 percent in the CCA to 6 percent in the MENAP region). - Loans account for the bulk of banking assets in ME&CA; in the GCC, loans amount to more than half of assets, with average annual loan growth of about 6 percent during 2014–20. - Banks’ holdings of securities in the GCC slightly increased by 12 percent over the same period. - CCA increase in government securities over 2014–20 is about 9 percent of bank assets (17 percent in Kazakhstan, 10 percent in Armenia, and 8 percent in the Kyrgyz Republic). - In Egypt and Pakistan, government bonds make up more than 40 percent of banking system assets. - Concentration, ownership, and competition: - The top four banks held about 72 percent of total assets in 2021, slightly above other emerging markets (65 percent of assets). - Government ownership of banks is prevalent, particularly in Egypt and Saudi Arabia (about 50 percent) and Pakistan (28 percent) in 2021. - The GCC displays the largest asset concentration, followed by the CCA; in GCC countries the top four banks account for about 70 (Saudi Arabia) to 88 percent (Qatar) of total assets. - Bank market power (Lerner index) has trended upward until the pandemic and is high across the region, particularly in MENAP. - Profitability and margins: - Average return on equity in the region stood at 14 percent in 2021—slightly above the emerging market average of 12 percent—ranging from 20 percent in the CCA to 10 percent in MENAP. - The CCA displays the highest spread between lending and deposit rates in the region; spreads are around 9 percent for Azerbaijan, Kazakhstan, and the Kyrgyz Republic. - Net interest income accounts for 60 percent of banks’ income; non-interest income accounts for about 12 percent in 2021. - In the GCC, nets interest margins remain comfortable due to a banking structure with low wholesale funding and a large share of non-interest-bearing deposits (interest expenses about 30 percent of banks’ total expenses on average compared to 43 percent in the CCA). - Liquidity: - Excess liquidity in the GCC is about 31 percent (as a share of assets) in 2021, compared to MENAP at 7.3 percent and CCA at 5.2 percent. - Excess liquidity can generate an undesired divergence with policy rates and impede monetary policy transmission. *Sources: IMF, Balance of Payments and International Investment Position Statistics database; World Bank, Remittance Prices Worldwide; and IMF staff calculations.* ### 1. Return on Equity, 2021 ### 1. Return on Equity, 2021 ### Overview - The chapter discusses banking sector metrics and the implications of introducing central bank digital currencies (CBDCs) for financial stability and monetary policy in the Middle East and Central Asia (ME&CA) region. - Key contextual facts: - Tier 1 capital ratios: hovering between 18 percent in the CCA and GCC and 16 percent in MENAP. - Liquid assets as a share of total assets are 22 percent in 2021. - Cash operations account for between 5 and 10 percent of total banking operating costs. ### Financial Stability Implications of CBDCs - Principal risks and bank responses: - Introducing a CBDC, especially a remunerated CBDC, could lead to a loss of deposits in the banking system. - Banks could react by increasing the remuneration of deposits or raising more wholesale funding, implying a reduction in profitability. - Possible bank responses to deposit outflows include raising deposit rates, increasing central bank financing, raising equity, or substituting toward wholesale funding. - Regional vulnerabilities highlighted: - Bank-sovereign nexus: sovereign bond holdings receive a zero-risk weight in Tier 1 ratios; in Egypt and Pakistan sovereign bond holdings are above 40 percent of total banking assets, which may mask vulnerability to asset revaluation or forced sales. - Asset quality: nonperforming loan ratios declined from over 13 percent in 2018 to 7 percent in 2021 in the CCA; GCC nonperforming loan ratios are roughly 4 percent of total loans with heterogeneity (Saudi Arabia 2 percent; United Arab Emirates about 7 percent in 2021). - Foreign funding: banks in Qatar, and to a lesser extent in the United Arab Emirates, have notable exposures to foreign deposits that could be prone to withdrawals in stress. - Liquidity and run risk: - CBDCs could be perceived as a safe haven during financial turmoil and increase run risks/liquidity risks. - Adequate deposit insurance, central bank liquidity provision, and strong capital and liquidity buffers are important preconditions before adopting a CBDC. - Net effects on profitability and costs: - CBDCs could reduce cash handling needs and associated costs; cash operations estimated to account for between 5 and 10 percent of total banking operating costs. - Net interest margins could compress if banks raise deposit rates or shift to costlier funding sources. ### Model Application: Scenarios and Simulations - Model scope: - A small structural model (Gross and Letizia 2023) is used to simulate unremunerated CBDC adoption for three representative ME&CA countries: Tunisia (emerging market), Qatar (developed financial system, low cash share), and Georgia (CCA economy, high cash usage, elevated dollarization). - Simulated scenarios: baseline (no CBDC), unremunerated “cash-like” CBDC, and unremunerated “checking account–like” CBDC. - Share of total money supply attained by unremunerated CBDC: - Model estimates that unremunerated CBDCs would attain a share between 1 and 10 percent of the total money supply across the three country cases. - Cash-like CBDC: - Georgia: close to 10 percent of total money. - Tunisia: close to 10 percent of total money. - Qatar: about 1.1 percent of total money (baseline cash-to-M2 ratio in Qatar is 2.18 percent). - Checking account–like CBDC: - Georgia: 3.5 percent of total money. - Tunisia: 3.5 percent of total money. - Qatar: 0.3 percent of total money. - Impact on deposits and bank profitability: - Across scenarios, an unremunerated CBDC has a negligible impact on the share of deposits in total money; bank profitability would not be directly affected and the overall impact on the banking sector would be small. - Short-term funding: as depositors move toward CBDCs some banks will need reserves and possibly access central bank refinancing; however, ME&CA banking systems are characterized by structural excess liquidity, especially the GCC. - Long-term funding adjustments may include smaller balance sheets, greater central bank financing, higher equity issuance, or more wholesale funding. ### Monetary Policy Pass-through - Potential effects: - CBDCs could strengthen monetary policy pass-through into deposit rates by increasing competition and reducing banking sector market power, particularly where deposit rates adjust slowly relative to policy rates. - If deposit funding becomes more sensitive to the policy rate, pass-through from policy rates into lending rates and credit provision could increase, strengthening the bank lending channel. - Offsetting effects: lower net interest margins and slower bank capital accumulation could constrain banks’ ability to lend, potentially weakening the bank lending channel. - Model findings on pass-through: - The model estimates that an unremunerated CBDC has no measurable impact on monetary policy pass-through (defined as pass-through from policy rates into banks’ funding costs) in the three country cases: - Georgia: pass-through remains at about 70 percent. - Qatar: pass-through remains at about 75 percent. - Tunisia: pass-through remains at about 72 percent. - Rationale: an unremunerated, cash-like CBDC does not compete with deposits; even a checking account–like unremunerated CBDC yields low take-up because of the remuneration difference with deposits. - Caveats: - The broader impact of CBDCs on monetary policy transmission is uncertain and depends on multiple transmission channels, country characteristics (degree of dollarization, financial market development, state-owned enterprise footprint, subsidized lending schemes), and CBDC design choices. - A comprehensive general equilibrium analysis would be required to assess effects on inflation and overall monetary conditions. ### Key Statistics and Exact Figures from the Chapter - Tier 1 capital ratios: 18 percent (CCA and GCC), 16 percent (MENAP). - Liquid assets as a share of total assets: 22 percent in 2021. - Nonperforming loan ratios: - CCA: declined from over 13 percent in 2018 to 7 percent in 2021. - GCC: roughly 4 percent of total loans in 2021. - Saudi Arabia: 2 percent in 2021. - United Arab Emirates: about 7 percent in 2021. - Sovereign bond holdings: above 40 percent of total banking assets in Egypt and Pakistan. - Cash-to-M2 ratio (Qatar baseline): 2.18 percent. - Unremunerated CBDC simulated shares of total money: - Cash-like CBDC: close to 10 percent (Georgia), close to 10 percent (Tunisia), about 1.1 percent (Qatar). - Checking account–like CBDC: 3.5 percent (Georgia), 3.5 percent (Tunisia), 0.3 percent (Qatar). - Net interest margins in 2022: - GCC: 2.7 percent. - MENAP (excluding GCC): 3.6 percent. - CCA: 5.9 percent. - Monetary policy pass-through under model: - Georgia: about 70 percent. - Qatar: about 75 percent. - Tunisia: about 72 percent. - Cash operations share of operating costs: between 5 and 10 percent of total banking operating costs. - Modeled CBDC attainment range: between 1 and 10 percent of the total money supply across scenarios. *Source: cbdcmecaea - 1. Return on Equity, 2021.* ### 1. Georgia ### 1. Georgia ### Monetary pass-through - Monetary pass-through coefficient values: 0.64, 0.66, 0.68, 0.70, 0.72, 0.74 ### Operating model (pilot design) - Georgia’s digital lari pilot project will follow the existing two-tier financial system where authorized and regulated financial institutions are responsible for servicing retail clients. - The National Bank of Georgia is still evaluating whether it or PSPs will record transactions. - A set of technology-related operations will be delegated to selected technology partners to act as a bridge between the central bank, PSPs, and other third-party product and service providers (National Bank of Georgia 2023). - ME&CA countries prefer an intermediated model where the private sector interacts with end users; Georgia’s pilot aligns with intermediated approaches described in the region. ### Technological choices and offline capacity - A private permissioned DLT network is currently considered the preferred technology for Georgia, though configuration preferences might change as the central bank continues to evaluate the best-suited design (National Bank of Georgia 2023). - Georgia is exploring both digital and offline solutions to support financial inclusion and resilience (for example, offline transactions and device-misplacement solutions are noted as part of regional experimentation). - Countries in the region testing permissioned DLT preserve central bank controls over access while delegating end-user functions to PSPs. ### Safeguard options: financial stability, integrity, and design limits - ME&CA countries pursuing retail CBDCs are opting for zero remuneration and low balance and transaction limits for now; Georgia is considering quantitative restrictions on holdings or transactions of CBDC to limit excessive capital flows to and from the banking sector and risks of illicit uses (National Bank of Georgia 2023). - Design trade-offs noted: - Too tight limits could discourage adoption; too loose limits could be ineffective in safeguarding the financial system. - A fully anonymous CBDC would not be compatible with financial integrity; tiered wallets with different limits are suggested as a compromise to allow greater anonymity at lower limits. - Programmability: - Georgia is actively exploring smart contract features for social assistance transfers. - Programmable CBDCs could strengthen payment efficiency and monetary sovereignty and transmission but could also pose risks to fungibility and user trust, potentially lowering adoption. ### Operational and reputational risk considerations relevant to Georgia - Central banks must ensure the CBDC is safe, secure, and efficient because any operational failure—even if caused by intermediaries or third-party providers—will impact central bank credibility. - Key operational risks highlighted (applicable to Georgia’s design choices): - Privacy of personal data and safe storage of identity and transaction information. - Cyberattacks and payment system resilience. - Compliance with AML/CFT regulations to avoid illicit use. - Outsourcing to third-party providers as a potential source of operational risk if safeguards and monitoring are lacking. - Reputation risks linked to implementation cost, low CBDC uptake, energy sustainability, and gaps in legal and regulatory frameworks. *Source: IMF staff calculations and National Bank of Georgia 2023, from IMF Departmental Papers • Central Bank Digital Currencies in the Middle East and Central Asia.* ### 6. Conclusion ### 6. Conclusion ### Overview - CBDCs are a promising option for central banks in a rapidly digitalizing world, but costs and benefits are country-specific and will require a comprehensive analysis. - The paper supports ME&CA policymakers by examining: What objectives do policy-makers aim to achieve with a CBDC? Which inefficiencies in payment systems can CBDCs address? What are the implications of CBDC issuance for financial stability, monetary policy pass-through, and central bank operational risk? How can CBDC design help achieve policy objectives and mitigate these risks? - The paper does not recommend whether a country should adopt a CBDC; answers depend on a country’s economic and financial conditions, and further research is needed to consider broader implications on monetary policy, inflation, and distributional impacts. - The IMF will continue to assist country authorities by providing capacity development, analytical work, and a platform for peer learning. ### Key findings - CBDCs could promote financial inclusion if they address the current inefficiencies in the payment system. - If offered at a lower cost than existing alternatives, a CBDC could spur competition in the payment market and help increase access to bank accounts, improve financial inclusion, and update legacy technology platforms. - CBDC uptake could suffer from the same barriers as other digital payments in the region due to low wealth, financial literacy, and other structural factors; in this case, gains in financial inclusion may not materialize. - CBDCs may help improve the efficiency of cross-border payment services. - If designed to address frictions from lack of payment system interoperability, complex compliance processing, long transaction chains, and weak competition, the cost of cross-border transactions could go down significantly. - Regional initiatives focusing on overcoming these complexities provide opportunities for learning from peers. - CBDCs can raise financial stability implications, especially for banks with high reliance on deposits—a predominant feature of the ME&CA banking system. - CBDCs may compete with bank deposits, reducing bank profitability and lending volumes. - Banking systems in the region generally have adequate capital, profitability, and liquidity buffers, which could help mitigate potential adverse impacts; nevertheless, it is important to monitor the entire distribution of banks. - There are no clear prerequisites to adopting CBDCs, but a healthy banking system, a sound legal basis, and strong supervisory and regulatory capacity are paramount to tackling possible adverse implications. - CBDCs could have a potential impact on monetary policy pass-through. - CBDCs could strengthen monetary policy pass-through into deposit rates by increasing competition and reducing banking system market power. - CBDCs could also strengthen the bank lending channel of monetary policy. - The impact would be country-specific and is difficult to estimate due to limited CBDC uptake. ### Concluding notes and policy implications - Decisions on CBDC adoption should be grounded in country-specific economic and financial conditions and a comprehensive cost–benefit analysis. - Design choices matter: appropriate CBDC design can help achieve policy objectives and mitigate risks to financial stability, monetary policy transmission, and operational resilience. - Central banks should incorporate feasibility studies, extensive technical testing, assessments of systemic stability, resilience to system failures and cyberattacks, and legal and regulatory reviews before launching a CBDC. - The IMF aims to deepen dialogue with ME&CA policymakers and to continue assisting authorities with capacity development, analytical work, and peer learning platforms. *Source: cbdcmecaea - 6. Conclusion* ### Annex 4. Middle East and Central Asia Department ### Annex 4. Middle East and Central Asia Department ### A. Jordan - IMF technical assistance to the Central Bank of Jordan (CBJ) began in late 2021 to assist CBDC exploration and lay the foundation for a feasibility study. - Scope of technical assistance: opportunities, challenges, design options, technology and cybersecurity risks, legal and regulatory frameworks, and macrofinancial implications. - Authorities’ initially stated objectives for exploring CBDC: - (1) promoting financial inclusion; - (2) improving both domestic and cross-border payment system efficiency (that is, real-time settlement availability; speed and reducing cost of transaction); - (3) improving competitiveness in the banking system; - (4) reducing illicit activity (that is, tax evasion). - Existing payment landscape and regional initiatives: - High interoperability between banks and PSPs through Instant Payment Systems such as JoMoPay and CliQ. - Buna (launched in 2020, led by the Arab Monetary Fund) functions as a central routing agent with a common set of operating rules; Buna currently covers four Arab currencies (Egyptian pound, Emrati dirham, Jordanian dinar, Saudi riyal) and two international currencies (euro, US dollar). - Buna and Jordan Payments & Clearing Company signed a memorandum of understanding to achieve interoperability between Buna and CliQ. - GCC RTGS (“AFAQ” payment system) aims to connect domestic RTGSs of respective central banks to create standardized cross-border payments; Jordan is not part of this initiative. - Barriers to digital payment uptake in Jordan: limited financial literacy, transaction fees, cash-oriented business models, and persistent “cash culture.” - Potential retail CBDC benefits: - Remove fees and further enhance interoperability, leveraging network effects. - Enhance customer trust in payment services relative to private-sector providers. - Reduce cross-border payment costs (for example, lower cash management costs of exchange houses if retail CBDCs are used reciprocally in remittance corridors). - Key risks to consider with retail CBDC issuance: - (1) improper design could lead to financial disintermediation; - (2) in stress periods, it could aggravate liquidity risk and lead to systemic risk; - (3) a cross-border retail CBDC could increase exchange rate volatility due to larger and more volatile capital flows and present a heightened risk for use in illicit activity; - (4) a retail CBDC could be an attractive target for cyberattacks, amplifying cybersecurity risk. - CBJ next steps: preparing a proof of concept for wholesale CBDCs and continuing feasibility analysis on legal, cybersecurity, and technology issues; IMF stands ready to provide further technical assistance. ### B. Kazakhstan - National Bank of Kazakhstan (NBK) has been exploring feasibility of the DT since 2021; currently conducting a second limited technical project to evaluate alternative payment scenarios and design choices. - DT characteristics and role: - The DT would be another liability of the NBK coexisting with existing cash and non-cash money. - Expected to complement existing national and private means of payment and add functionality: accessibility, anonymity, bearer instrument, independence, operational efficiency, and programmability. - Existing payment systems: - Interbank System of Money Transfer: RTGS for large payments managed by the NBK and supported by five systemically important payment system providers. - Interbank Clearing System: net settlement system for small payments managed by the NBK. - Around 30 private sector money systems mostly managed by second-tier banks where electronic money is a private liability. - Stated objectives for the DT: - Promote competition among second-tier banks, financial innovation, and wider payment services through remote biometric identification, programmability, and smart contracts. - Promote financial inclusion and penetration of non-cash payments, including offline payments. - Operational and governance model (2021 project): - Retail currency, token based, operating on a DLT, distributed following a two-tiered, hybrid operational model. - NBK responsibilities: issue tokens to second-tier banks, monitor security, ensure participant connections, maintain distributed ledger and records of transactions and balance sheets, discharge notary node responsibilities, and can halt, transfer balances, and restart the payment system in case of intermediary failure. - Second-tier banks responsibilities: provide retail payment services, issue and distribute DT through digital account wallets, discharge AML/CFT and Know Your Customer responsibilities. - Timeline and expansion: - Ongoing 2023 technical project to evaluate more scenarios including integration with international payment systems. - Expected full launch by the end of 2025, with gradual expansion in functionality until full-scale launch. - Uncertainties and design challenges: - Feasibility of safe and unlimited offline transactions not proven; introduction of quantitative limits for offline transactions may be needed to limit fraud risk. - Feasibility of unlimited low-cost payments not proven; periodic reissuance of tokens would likely be required to keep costs low. - Desired level of anonymity and confidentiality and consumer protection policies yet to be defined. - Uncertainties regarding readiness of the regulatory framework. - Macro implications (NBK studies conclusions, linked to limited scope of 2023 technical project): - (1) Demand for the DT is limited and estimated at about 10–20 percent of available funds. - (2) A nonremunerated DT would limit demand to about 5–6 percent of GDP. - (3) Introduction of the DT would not increase the monetary base but only changes in the money supply structure. - (4) Potential crowding out of bank deposits can be mitigated by introducing quantitative restrictions on conversions of current accounts into DT wallets or other price measures. - (5) Interest channel of monetary policy transmission would be strengthened due to the complementarity of DT and cash. - Note: the likely true macro impact of any design choice can only become evident over time. ### C. Libya - Payment infrastructure and institutional context: - Central Bank of Libya (CBL) operates four payment systems: the RTGS, the automated clearing house, the automated check clearing system, and the SWIFT portal. - The national switch, owned by the top five banks, links banks and the CBL to settle claims on point-of-sale terminals and cards. - Digital payments landscape is fragmented; eastern branch of the CBL operates parallel payment systems, creating liquidity pressure on banks and decreasing payment service efficiency. - Recent digital payments evolution (conflict-induced shift toward electronic payments): - Between 2018 and 2022: - POS terminals increased from 5,000 to 27,000. - Volume cleared on automated check clearing system tripled to LYD65 billion. - Number of active cards increased from 0.5 to over 1.2 million. - Over 80 percent of POS terminals are in the northwest part of the country. - Barriers and limitations: - Volume limits on cards and wallet transactions introduced by some banks to preserve liquidity. - Strong cash culture and concentration of POS terminals in certain parts of the country slowed electronic payment adoption. - Currency in circulation and preferences: - Public preference to hold notes; currency in circulation (CIC) is above 30 percent of broad money supply. - High informality, weak rule of law, and banks’ liquidity problems increased public preference for notes. - Fragile security situation and dispersed population increased operational costs to supply notes and resulted in delivery delays that exacerbated notes shortages. - CBL commitments and planned initiatives: - Allow international cards to be used in Libya. - Adopt chip and pin technology. - Use automated clearing house for public sector salary payments. - Expand national switch membership to encompass all banks. - Issue technical rules for payment services, introduce instant payments, and explore potential role for a CBDC. - Potential CBDC benefits in Libya: - Speed up digitization of payment services, reduce CIC, and lower AML/CFT risks via offline capability, traceability, and peer-to-peer transfers. - Increase digital payments adoption if used to pay public sector wages and social benefits. - Programmability could deliver more targeted subsidies. - High adoption could provide some protection against counterfeit currency. - Risks and cautions: - Risks include banks’ disintermediation and low public take-up. - Credit to GDP in Libya is around 11 percent and most bank assets (approximately 60 percent) are liquidity held with the CBL. - CBDC adoption is unlikely to lead to further disintermediation of banks, especially if the CBDC targets CIC and is not remunerated. - International experiences show a low adoption rate of unremunerated CBDC and raise legitimate cost-benefit concerns; a detailed impact study should be conducted before proceeding. - Enabling factors for CBDC adoption: - Foreign currency reserves backing: reserves of over 48 months of imports. - High mobile phone usage: around 120 percent of the population (MENA average 66 percent; global average 68 percent, GSMA 2021). - Young population: median age of 29 years. - IMF role: - IMF can assist authorities to assess legal and technical requirements, financial stability implications, and potential benefits of introducing a CBDC in Libya; the CBL has expressed interest in CBDCs. *Source: Annex 4. Middle East and Central Asia Department* ### introduction of a local currency CBDC remains an open question. In countries where the main motive for ### cbdcmecaea - introduction of a local currency CBDC remains an open question. In countries where the main motive for ### Model Parameterization - Calibration targets: a country’s deposit rate and cash ratio by selecting the optimal number of banks and base utility of cash (Annex Table 5.1). - Two-step calibration: - Step 1: estimate sensitivity of deposits to the deposit rate, β. - Step 2: estimate the optimal number of banks and the base utility of cash that match prevailing deposit rates and cash ratios (Annex Table 5.2). - Key parameter values (Annex Table 5.1): - Number of Banks В: Tunisia = 6, Qatar = 11, Georgia = 15. - Base Utility for Cash α_CASH: Tunisia = 2.6, Qatar = 2.2, Georgia = 2.1. - Price Sensitivity β: Tunisia = 55, Qatar = 14, Georgia = 025. - Velocity of Money γ: Tunisia = 0.3609, Qatar = 1.362. - Reserve Requirement λ: Tunisia = 1%, Qatar = 4.5%, Georgia = 5%. - Reserve Borrowing Rate ι̇_RB: Tunisia = 6.5%, Qatar = 3.41%, Georgia = 10.5%. - Reserve Remuneration Rates [ι̇_RRH, ι̇_ERH]: - Tunisia = [0.29%, 1.75%] - Qatar = [0%, 3.41%] - Georgia = [10.5% , 10.5%] - Model targets (Annex Table 5.2): - Deposit Rate: Tunisia = 4 .12 %, Qatar = 2. 51%, Georgia = 5.03%. - Cash Ratio (cash/M2): Tunisia = 18.69%, Qatar = 2.18 %, Georgia = 22.45%. ### Model Main Findings — Aggregate and Banking Effects - CBDC adoption and shares: - A CBDC could attain a significant share of total money across the three country cases. - In Georgia and Tunisia (highly cash-reliant), an unremunerated cash-like CBDC would attain a share of close to 10 percent in total money. - With positive remuneration, or when CBDC is deposit-like, CBDC shares could reach: - Georgia = 30 percent - Tunisia = 25 percent - Deposit-like CBDCs could attain a share in total money of up to 30 percent depending on remuneration rates and would reduce both deposits and the cash share. - Deposits and bank response: - A deposit-like CBDC reduces bank deposits; for Georgia and Tunisia, deposits decline by about one-third. - For Qatar, maximum deposit outflows are around 26 percent because the spread policy rate–deposit rate is lower. - Banks partially increase deposit rates in response to competition from a remunerated CBDC; quantity of deposits falls while deposit rates increase. - Funding mix and central bank interaction: - To compensate for deposit declines, banks would increase reserve borrowings from the central bank. - Up to one-third of bank funding would come from reserve borrowings if a CBDC is deposit-like and fully remunerated. - Wholesale funding markets and nonbank financial institution sectors remain small in many countries in the region. - Profitability and capitalization: - Net income declines but banking systems remain profitable in aggregate. - Systemwide return on assets (RoA) changes under CBDC scenarios: - Tunisia: RoA would decline by 0.4 percentage point. - Georgia: RoA would decline by 0.5 percentage point. - Qatar: RoA would decline by 0.2 percentage point. - Aggregate bank-level capitalization would remain unaffected, though individual weak banks could be adversely affected; regulators should monitor the entire distribution of banks. - Model caveat: loan rates do not endogenously adjust and bank balance sheet sizes are fixed ex ante. - Central bank seigniorage: - A cash-like CBDC unambiguously lowers central bank seigniorage; decline increases with remuneration rate. - For deposit-like CBDC, effect on seigniorage is hump-shaped: - Low remuneration rates (25–50 percent of the policy rate): seigniorage slightly increased due to higher revenue from reserve lending. - As CBDC remuneration approaches 100 percent of the policy rate: expenses on CBDC outweigh reserve lending revenue. - Potential peak seigniorage declines: - Georgia and Tunisia = up to 90 percent. - Qatar = around 25 percent. - Fiscal implication: where seigniorage revenue is rebated to the ministry of finance, changes could have fiscal implications. ### Financial Stability, Exchange Rate, and Cross-Border Considerations - A CBDC accessible to foreigners: - Could reduce foreign deposits in Qatar by up to 26 percent, potentially mitigating reliance on nonresident deposits. - Could affect capital flows, the exchange rate, and result in currency substitution; in pegged regimes this might require additional central bank interventions. - Dollarization and lending channels: - In Georgia, effects depend on whether CBDC affects dollarization. - Higher funding costs could imply higher lending rates (channel not incorporated in the model) and banks may need to shrink balance sheets if they cannot offset reductions in deposit funding. - Deposit rate increases could attract deposits from wealthier households or CBDC could strengthen financial inclusion, attenuating deposit outflows. ### Interest Rate Pass-Through and Monetary Policy Transmission - Two main channels by which CBDCs affect pass-through: - Competition for deposits induces banks to charge higher deposit rates and respond more to policy rate increases. - Shift in funding mix toward reserve borrowings (cost = policy rate) gives a 100 percent pass-through when policy rates rise. - Scenarios analyzed: - Baseline: no CBDC. - Unremunerated CBDC: cash-like. - Fully remunerated CBDC: deposit-like. - Pass-through measured as response to a 100 basis point increase in the policy rate into banks’ cost of funding (deposits + reserve borrowing expenses). - Key pass-through findings: - An unremunerated CBDC has no impact on monetary policy pass-through; pass-through coefficients are statistically indistinguishable from baseline. - A remunerated CBDC strengthens pass-through: increases banks’ cost of funding by between 7 and 10 additional basis points for a 100 basis point increase in the policy rate. - The increase in pass-through is slightly larger in Georgia and Tunisia where baseline pass-through is lower. - Policy implication: monetary policy could become more effective, but banks may be more adversely affected by monetary tightening as their funding cost becomes more sensitive to the policy rate. - Results caution: several transmission channels are not modeled (exchange rate channel, bank lending channel); additional modeling is needed to assess effects on output and inflation. - Design sensitivity: - The scope of CBDC adoption and network effects matter: caps on holdings per person would reduce impact on pass-through relative to unlimited holdings. - Authorities should evaluate design features (remuneration, caps, foreign access) carefully for monetary policy implications. ### Future Research Directions and Model Limitations - Suggested extensions: - Richer menu of deposit contracts (e.g., savings versus time deposits). - Impact of CBDC on nonbank financial institution balance sheets. - Endogenous adjustment of loan rates and bank balance sheet sizes to capture broader monetary policy transmission. - Network effects in CBDC adoption and design options to spur adoption (e.g., financial inclusion measures). - Analysis of CBDC impact on financial inclusion, cross-border flows, dollarization, and spillovers. - Implications of remunerated CBDC adoption using structural models. - Model limitations highlighted: - Loan rates fixed ex ante; bank-level heterogeneity beyond RoA not modeled. - Exchange rate channel and bank lending channel not explicitly modeled. - Wholesale funding role and nonbank sectors small in the model context, reflecting current regional market structures. ### Georgia — Macrofinancial Parameters (excerpt) - Cash share: 22.5 percent. - Dollarization: - Deposit dollarization = 55 percent in 2022. - Loan dollarization = 40 percent in 2022. - Deposit rates: 5.03 percent. - Policy rate at end-2021: 10.5 percent. - Model price sensitivity of deposits: β = 25. - Banking sector characteristics: - Highly concentrated; top four banks cover 85 percent of the market. - 80 percent of banks’ nonequity funding comes from deposits. *Source: IMF staff calculations using model by Gross and Letizia (2023); IMF DEPARTMENTAL PAPERS • Central Bank Digital Currencies in the Middle East and Central Asia.* ### 5.4 percent, which underlines the high profitability of the Georgian banking sector. ### cbdcmecaea - 5.4 percent, which underlines the high profitability of the Georgian banking sector. ### Results: CBDC adoption and money shares - A CBDC could attain a nonnegligible share of total money, competing with deposits and cash. - Even in the absence of remuneration, a cash-like CBDC would reduce the share of cash by half in Georgia. - A deposit-like CBDC would exhibit a relatively low adoption rate (< 5 percent) if moderately remunerated. - A deposit-like CBDC that is remunerated at the prevailing policy rate would attain a share of more than 30 percent of total money, leading to a significant drop in deposits (by more than 30 percent). - A CBDC could achieve an adoption rate of up to 30 percent depending on design features and adoption. ### Impact on banks’ funding, rates, and profitability (Georgia) - The decline in deposits in the case of a remunerated CBDC would lead banks to increase their borrowing from the central bank. - Borrowing from the central bank would increase by 4 billion lari. - This reallocation is particularly pronounced when CBDC is remunerated at or close to (75 percent) the policy rate. - If the CBDC is cash-like, it has no impact on deposit funding for banks as it does not directly compete with deposits. - The deposit rate would rise from 5.03 percent to about 6 percent if the CBDC was deposit-like and remunerated at the policy rate. - While deposits fall and the deposit rate rises, the net effect is a decline in banks’ interest expenses: - Deposit expenses fall from 0.6 to 0.4 billion lari. - Expenses on reserve borrowing rise by 0.4 billion lari. - Implied reduction in net income of 0.2 billion lari, or close to 37 percent. - Systemwide RoA would drop from about 3.4 percent to 2.9 percent. - Banks would remain comfortably profitable despite the decline in RoA. - The substantial reduction in RoA could trigger increases in bank risk-taking or increases in loan rates; these second-round effects need careful evaluation. ### Monetary policy pass-through and market effects - Baseline pass-through is around 70 percent, reflecting high concentration of the domestic banking sector and low interest rate sensitivity of deposits. - Competition from a CBDC would increase pass-through to about 79 percent in the case of a deposit-like CBDC with full remuneration. - Introducing a CBDC has the potential to increase monetary policy pass-through in Georgia by indirectly increasing competition for the banking sector, inducing banks to pass on more of the policy rate increase into deposit rates. - Reduced market power for banks could benefit consumers via higher deposit rates, but could also pressure banks’ net interest margins and affect lending rates. ### Seigniorage and central bank finances - A cash-like CBDC always reduces seigniorage; remunerating a cash-like CBDC increases central bank expenses and reduces seigniorage further. - A deposit-like CBDC can raise central bank revenue when remuneration is low due to increased demand for borrowing from the central bank offsetting interest expenses. - Moderate remuneration of a deposit-like CBDC leads to a slight increase in seigniorage. - Remuneration at the policy rate would instead lead to a decline of close to 40 percent in seigniorage. - Seigniorage could fall from currently about 0.5 billion lari to close to zero in the most adverse scenario where CBDC is cash-like and fully remunerated. ### Policy implications and areas for further research - The introduction of a CBDC could accelerate the transition to electronic payments in Georgia by reducing cash reliance. - Potential trade-offs and risks that warrant further analysis: - The impact of high CBDC adoption rates on deposit outflows when the CBDC is remunerated and perceived as deposit-like. - How lending rates and credit provision may respond to declining bank profitability and RoA. - The macroprudential framework required for a CBDC—including robust capital regulation and liquidity buffers. - The impact of introducing a domestic CBDC on dollarization. *Source: IMF staff calculations.* ### 4.1 percent. ### cbdcmecaea - 4.1 percent. ### Banking structure, funding, and profitability - Tunisian banks primarily fund themselves with deposits; deposits account for 92 percent of total nonequity funding. - Banks display healthy profitability supported by sizable policy rate–deposit spreads; deposit-lending spreads around 2.7 percent. - The banking sector has a relatively lower degree of concentration (53 percent of asset at the top four banks); estimated number of banks B = 6. ### CBDC adoption potential and market shares - A CBDC could attain a significant share of total money supply in Tunisia: - A cash-like CBDC could account for up to 18 percent of the total money stock (depending on remuneration). - A deposit-like CBDC could capture a market share of up to 25 percent. - Even if nonremunerated, a cash-like CBDC is estimated to capture a 9 percent market share. - Broad range estimate: A CBDC could attain a 2 to 30 percent share in total money (likely lower and upper bounds depending on design). ### Impact on deposits and banks’ funding behavior - Deposit substitution outcomes depend on CBDC design and remuneration: - At low rates of remuneration (25–50 percent of the policy rates), deposits decline modestly by 2 to 6 percent. - If fully remunerated, deposits would decline by about one-third—from about 75 billion Tunisian dinar to about 50 billion. - Price sensitivity is a key driver for substitution between deposits and a deposit-like CBDC. - To limit deposit outflows, banks raise deposit rates; the deposit rate would increase slightly from 4.1 percent to 4.2 percent. - With deposits declining, banks substitute toward increased reserve borrowing from the central bank: - In the scenario of a fully remunerated, deposit-like CBDC, banks would borrow an additional 20 billion Tunisian dinar from the central bank to maintain stable funding. - Wholesale funding is unlikely to absorb large funding needs because its role in Tunisia is small due to underdeveloped secondary markets and a small nonbank financial sector. ### Effects on banks’ income and profitability - Net income declines as the rise in deposit rates and increased central bank reserve borrowing reduce net interest margins, but banks remain profitable across scenarios: - Decline in deposit expenses of up to 1 billion Tunisian dinar (despite higher deposit rates). - Increase in expenses on reserve borrowings from the central bank of up to 1.5 billion Tunisian dinar. - Taken together, these imply a reduction in net income by up to 500 million Tunisian dinar (from a level of 1.6 billion Tunisian dinar). - Return on assets (RoA) would decline from 1.6 percent to 1.2 percent in the most impactful scenario (deposit-like and fully remunerated CBDC). - Other scenarios (lower remuneration rate or cash-like CBDC) imply a lower reduction in banks’ profitability. ### Central bank finances and seigniorage - A cash-like CBDC unambiguously lowers central bank seigniorage; a deposit-like CBDC’s effect depends on remuneration: - Seigniorage would decline by up to 35 percent in the case of a deposit-like CBDC. - Seigniorage would decline by up to 90 percent if the CBDC is cash-like. - If remunerated, a cash-like CBDC lowers central bank profits and the decline is increasing in the remuneration rate (central bank income unchanged while CBDC expenses increase). - For a deposit-like CBDC, the empirical effect on seigniorage takes a hump shape: - For remuneration rates up to 75 percent of the deposit rate, a deposit-like CBDC leads to a slight increase in seigniorage (increased reserve lending revenue to the central bank outweighs CBDC remuneration expenses). - A fully remunerated deposit-like CBDC leads to a decline in seigniorage by more than 200 million Tunisian dinar. ### Policy implications and suggested further analysis - There is significant scope for CBDC adoption in Tunisia; central authorities may wish to conduct further in-depth analysis as they explore the introduction of the e-Dinar. - Key risks and considerations: - A deposit-like highly remunerated CBDC significantly reduces bank profitability (by close to one-third), which could lead to higher lending rates or, in downside scenarios, increased risk-taking by banks. - The limited role of wholesale funding in Tunisia reduces banks’ alternative funding options if deposits decline materially. - Additional analytical priorities for the Central Bank of Tunisia and authorities: - Analyze heterogeneous impact of a CBDC across individual banks. - Assess how factors outside the model (for example, price subsidies or subsidized lending schemes) may dampen increased monetary policy pass-through. - Consider implications for monetary policy effectiveness; estimates suggest CBDC would increase monetary policy pass-through from 0.72 to 0.82. ### Key statistics and exact figures from the analysis - Deposits share of nonequity funding: 92 percent - Deposit-lending spreads: 2.7 percent - Top four banks’ asset share: 53 percent - Estimated number of banks: B = 6 - Cash-like CBDC market share (max): up to 18 percent - Deposit-like CBDC market share (max): up to 25 percent - Cash-like CBDC market share if nonremunerated: 9 percent - Low remuneration range: 25–50 percent of the policy rates - Deposits decline at low remuneration: 2 to 6 percent - Deposits under fully remunerated deposit-like CBDC: decline by about one-third (from about 75 billion Tunisian dinar to about 50 billion) - Deposit rate: increases from 4.1 percent to 4.2 percent - Additional central bank borrowing (fully remunerated, deposit-like): 20 billion Tunisian dinar - Reduction in deposit expenses: up to 1 billion Tunisian dinar - Increase in reserve borrowing expenses: up to 1.5 billion Tunisian dinar - Reduction in net income: up to 500 million Tunisian dinar (from 1.6 billion Tunisian dinar) - RoA: declines from 1.6 percent to 1.2 percent (most impactful scenario) - Seigniorage decline: up to 35 percent (deposit-like), up to 90 percent (cash-like) - Deposit-like CBDC remuneration threshold with slight seigniorage increase: up to 75 percent of the deposit rate - Full remuneration outcome on seigniorage: decline by more than 200 million Tunisian dinar - Broad CBDC adoption bounds: 2 to 30 percent share in total money - Monetary policy pass-through: increases from 0.72 to 0.82 *Source: IMF staff calculations and analysis in the chapter "Tunisia" from the IMF Departmental Paper.* --- _Source: https://www.imf.org/-/media/files/publications/dp/2024/english/cbdcmecaea.pdf_