Central Bank Digital Currencies in the Middle East and Central Asia

Departmental Papers, April 26, 2024

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Canonical URL: Central Bank Digital Currencies in the Middle East and Central Asia

Authors: Serpil Bouza, Bashar Hlayhel, Thomas Kroen, Marcello Miccoli, Borislava Mircheva, Greta Polo, Sahra Sakha, Yang Yang
Published: April 26, 2024
Series: Departmental Papers
DOI: https://doi.org/10.5089/9798400263798.087

Authors: Serpil Bouza, Bashar Hlayhel, Thomas Kroen, Marcello Miccoli, Borislava Mircheva, Greta Polo, Sahra Sakha, Yang Yang
Date: April 26, 2024
Series: Departmental Paper No 2024/004
Pages: 68
Volume: 2024
Issue: 004
DOI: https://doi.org/10.5089/9798400263798.087
Stock No: CBDCMECAEA
ISBN: 9798400263798
ISSN: 2616-5333

Aim: Support ME&CA policymakers in examining key questions when considering the adoption of a CBDC while underscoring the importance of country-specific analyses.
Explicit limitation: The paper does not provide recommendations on CBDC issuance; it frames the discussion around core questions and provides preliminary regional-level answers.
Core questions framed:
- What is a CBDC?
- What objectives do policymakers aim to achieve with the issuance of a CBDC?
- Which inefficiencies in payment systems can CBDCs address?
- What are the implications of CBDC issuance for financial stability and central bank operational risk?
- How can CBDC design help achieve policy objectives and mitigate these risks?

Survey evidence and public statements:
- Promoting financial inclusion and making payment systems more efficient (domestic and cross-border) are the top priorities in the ME&CA region.
Conditionality of impacts:
- The exact economic and financial impacts of CBDCs depend on estimates of CBDC demand, which are uncertain and country-dependent.
- CBDC issuance and adoption is characterized as a long journey requiring careful, country-specific analysis.

Payments and inclusion:
- Payment services through CBDCs, if offered at a lower cost than existing alternatives, could spur competition in the payment market.
- Potential outcomes include increased access to bank accounts and improved financial inclusion.
- CBDCs could help update legacy technology platforms.
Cross-border payments:
- CBDCs may improve the efficiency of cross-border payment services, particularly if designed to address:
- lack of payment system interoperability,
- complex processing of compliance checks,
- long transaction chains,
- weak competition.

Banking sector impact:
- CBDCs could negatively impact bank profitability.
Central bank operational burden:
- CBDC issuance could introduce a substantial operational burden for central banks.
Need for further study:
- Economic and financial impacts require further study given uncertainty in CBDC demand estimates.
Trade-off emphasis:
- Policymakers need to analyze whether a CBDC serves national objectives and whether expected benefits outweigh potential costs, including risks to the financial system and operational risks for the central bank.

Approach:
- Analyze carefully whether a CBDC serves the country’s objectives.
- Conduct country-specific assessments of expected benefits versus potential costs and risks.
Design considerations:
- Use CBDC design choices to help achieve policy objectives and mitigate financial stability and operational risks.
Implementation perspective:
- Treat CBDC issuance and adoption as a long-term process requiring careful planning and analysis.

Central Bank Digital Currencies in the Middle East and Central Asia, Departmental Paper No 2024/004.