MUSCAT: Plans by the Sultanate of Oman, among an array of other countries in the Gulf and Middle East, to introduce Central Bank Digital Currencies (CBDC) have been broadly welcomed by the International Monetary Fund (IMF).
A blog by IMF staffers, published on Tuesday, June 18, 2024, has underlined the potential of CBDCs to promote financial inclusion and improve the efficiency of cross-border payments.
Central Bank Digital Currencies (CBDCs) are digital tokens issued by a central bank that are pegged to the value of that country's fiat currency. A number of advanced economies have already embraced CBDCs, while others are weighing plans to introduce such government-backed digital currencies as a means to implement monetary policies to provide fiscal stability and control inflation.
Oman is among 19 countries in the Middle East and Central Asian region that are currently exploring issuing a CBDC, said IMF staffers Serpil Bouza, Marcello Miccoli, and Borislava Mircheva in their blog on the benefits of Central Bank digital currencies.
“CBDCs can potentially help improve the efficiency of cross-border payment services. This appears to be an important priority for oil exporters and the Gulf Cooperation Council countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. That’s because cross-border payments tend to have frictions like varying data formats and operating rules across regions and complex compliance checks. CBDCs that address these inefficiencies could significantly cut transaction costs,” they wrote.
Boding well for the growth of CBDC-based transactions are cross-border technology platforms such as, for example Buna, created by the Arab Monetary Fund in 2020. Such platforms not only promote digital currency payments between countries, but also advance financial inclusion, according to the IMF blog.
“CBDCs can advance financial inclusion by fostering competition in the payments market and allowing for transactions to be settled more directly and with less intermediation, in turn lowering the cost of financial services and making them more accessible,” they explained.
“Unlike commercial banks, central banks can also help keep costs lower as they aren’t concerned with making a profit. Similarly, the resulting increased competition in the payments market from a CBDC could also encourage upgrading technology platforms and the efficiency of payment services, helping financial services reach more people.”
The IMF blog encourages regional countries to design CBDCs with the goal of promoting financial inclusion and payment system efficiency. For example, CBDCs can be designed to work offline – a move that will support financial inclusion in areas with patchy mobile service coverage. Likewise, designing CBDCs for cross-border transfers could help lower the cost of sending remittances and speed up transfer times, it pointed out.
Like many of its peers in the Middle East and Central Asia region, Oman’s plans for a CBDC issuance are still at the research stage. Commenting on its vision for CBDC issuance in Oman, the Central Bank of Oman (CBO) noted in its 2023 Financial Stability Report: “The CBO is actively monitoring developments in various emerging areas and has established task forces dedicated to studying Central Bank Digital Currencies (CBDCs) and other digital innovations. This proactive approach allows the CBO to equip itself with the expertise required to navigate the evolving landscape of digital finance and stay prepared to take appropriate action when necessary.”
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