## HIGH-LEVEL SUMMARY TECHNICAL ASSISTANCE REPORT — JORDAN Retail Central Bank Digital Currency Exploration December 2022 ## Source details **Canonical URL:** [HIGH-LEVEL SUMMARY TECHNICAL ASSISTANCE REPORT — JORDAN Retail Central Bank Digital Currency Exploration December 2022](https://www.imf.org/-/media/files/publications/hls/2023/english/hlsea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/hls/2023/english/hlsea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/hls/2023/english/hlsea2023001.pdf.json) --- ### Background - Mission conducted from July 2022 to September 2022 at the request of the Central Bank of Jordan (CBJ) to assist in exploring retail Central Bank Digital Currency (rCBDC) and lay foundations for a feasibility study report. - Mission objectives: - Identify policy objectives and use cases where rCBDC could add value. - Assess the retail payment landscape, including the national payment system and services offered by banks and PSPs, to identify pain points. - Review capacity-development needs in technology, cybersecurity, financial integrity, and legal areas. - Document key findings and recommendations. ### Retail payments landscape and key pain points - Retail payment systems in Jordan: - Well integrated, enabling transactions between banks and PSPs through JoMoPay and CliQ. - Cross-border remittance market populated by many service providers. - Enabling factors: - High smart phone penetration and a young population. - Generally accessible and appropriate product offerings. - Barriers preventing extensive digital payments adoption: - Limited financial literacy. - High transaction fees. - Cash-oriented business models. - Persistence of a "cash culture." ### Policy objectives explored and potential rCBDC benefits - Three policy objectives explored: - Financial inclusion. - Domestic payment improvement. - Cross-border payment improvement. - Potential benefits of rCBDC identified by the mission: - rCBDC could enhance financial inclusion by instilling more trust among the population and by servicing residents without smartphones. - rCBDC could improve domestic payments through enhanced interoperability across digital payment platforms by allowing banks and PSPs to use the rCBDC’s public infrastructure. - rCBDC could reduce cross-border remittance costs by lowering transaction costs, by allowing foreign PSPs to have access, and/or if rCBDCs were used reciprocally with counterparts in remittance corridors. ### Policy tradeoffs and potential risks - Domestic risks: - Improper design could lead to financial disintermediation. - In stress periods, rCBDC could potentially aggravate liquidity risks. - Cross-border risks: - A cross-border rCBDC could potentially increase exchange rate volatility due to larger and more volatile capital flows. - Heightened risk for use in illicit activity. - Operational and security risks: - rCBDC could amplify cybersecurity risk by being an attractive target for cyber-attacks. ### Cybersecurity, privacy, and resilience considerations - Cybersecurity and privacy risks may affect financial institutions, merchants, and customers and could impact rCBDC adoption. - CBJ is still exploring several technologies for issuing rCBDC and plans to establish technology, cybersecurity, and privacy requirements. - Financial sector has good information security governance and management practices, but: - Robustness and cyber resiliency of Jordan’s technology infrastructure can be challenged by evolving cyber threats and cybersecurity resources. - Recommendation example: - Establish a 24/7 Securities Operations Center for the financial sector to protect critical payment infrastructure. ### Financial integrity (AML/CFT) considerations - rCBDC may present money laundering/terrorist financing (ML/TF) risks if not properly designed. - Jordan is currently subject to increased monitoring by the Financial Action Task Force due to strategic deficiencies in the country’s AML/CFT framework. - Left unaddressed, these deficiencies would greatly undermine the integrity of the proposed rCBDC and there are no alternative measures planned. - Recommendation: Before issuing rCBDC, CBJ should assess ML/TF risks related to domestic and cross-border use and mitigate identified risks, including by addressing deficiencies identified in the Mutual Evaluation Report and taking required legal, regulatory, and policy measures. ### Legal considerations - rCBDC constitutes a new function for the CBJ and should be based on a sound legal underpinning under both public and private laws. - Authorities are encouraged to reflect on specific legal issues related to: - (i) cross-border use of rCBDC, - (ii) the consistency of rCBDC payments related restrictions with treaty obligations, including the IMF’s Articles of Agreement, - (iii) the legal classification of rCBDC in private law, - (iv) agreements to be signed by the CBJ with tech providers related to the deployment of rCBDC infrastructure. - Recommendation: Based on design and use-case decisions, CBJ should assess the existing legal framework to evaluate (i) readiness for issuance of a rCBDC and (ii) need for any required legal amendments. ### Evaluation and sequencing guidance - Cross-border rCBDC: - Worthy of consideration and could add value, particularly if coordinated with other countries in the region. - Domestic rCBDC: - May offer some benefits in the domestic digital payment market but does not necessarily address identified pain points. - Overall guidance: - Rigorous evaluation of benefits against risks and costs is required before proceeding. - Consider best non-CBDC solutions to address pain points and compare merits, risks, and costs of rCBDC against alternatives. - Early decisions on rCBDC policy objectives and early stakeholder engagement will help address technology, cybersecurity, and privacy requirements. ### Summary of key recommendations - Prepare analytical note(s) on policy objectives (e.g., financial inclusion), use cases (e.g., cross-border payments), costs and benefits, various policy implications, and design options. - Set up a forum to discuss a possible rCBDC with stakeholders, including the Jordan Payments and Clearing Company (JoPACC), banks, non-bank payment service providers, exchange houses, consumers, merchants, and government departments. - Explore ways to ensure that fee/commission structures do not become a barrier for digital payment services. - Explore ways to further raise the public's access to and usage of digital payment services. - Consider possible measures to integrate exchange house payment activities into the domestic payment infrastructure. - Enhance capabilities to protect critical payment infrastructure, including establishing a 24/7 Securities Operations Center for the financial sector. - If CBJ decides to adopt a rCBDC, prioritize active engagement with stakeholders to raise cybersecurity and privacy awareness, facilitate rCBDC adoption, and establish strategies for attracting, upskilling, and retaining cybersecurity talents. - Before issuing rCBDC, assess ML/TF risks related to domestic and cross-border use and mitigate risks, including addressing deficiencies identified in the Mutual Evaluation Report. - Based on design and use-case decisions, assess existing legal framework readiness and identify required legal amendments. *Prepared by Natsuki Tsuda (Mission Chief, MCM) and Marianne Bechara (LEG), Stephanie Forte (LEG), Kathleen Kao (LEG), Shuji Kobayakawa (STX), Ashley Lannquist (ITD), and Frankosiligi Solomon (ITD). JEL Classification Numbers E42, F24, G21, G23.* --- _Source: https://www.imf.org/-/media/files/publications/hls/2023/english/hlsea2023001.pdf_