Without a doubt, there has been a steady growing international interest in and requests for Central Bank Digital Currency (CBDC) in many parts of the world. While it may be an idea in many places, the Middle East seems to be moving forward quickly in order to take advantage of the profit from CBDC as the global trading and energy trends are gradually changing. Cryptocurrency Brokers in many nations have already started taking significant steps towards the creation of CBDCs. The list includes a series of small island states around the globe, as well as China.
If you’re looking to get a better understanding of the CBDC phenomenon in Middle Eastern countries, read on.
Keeping up with the trends
In an attempt to keep up with the changes that the Coronavirus pandemic has been forcing us to face within the past 18 months, most countries in the Middle East have started embracing a series of payment-related upgrades. While going back to ‘normal’ seems to be a desire that is not attainable, going forward and accelerating the switch to digital payments seems to be the reality we are all living in right now. Contactless and mobile payment types have gained more ground than ever. These new methods are becoming part of our daily shopping routine, along with the use of QR scanners and payment alternatives that let us make a purchase now and pay later on. The Winter Olympics, to be held in Beijing in 2022, already promise to introduce participants to a series of special badges, gloves, and Olympic uniforms that will include payment functions.
Without a doubt, we are experiencing many impressive changes around us. While attempting to keep up with the trends, global central banks are also striving to step up their efforts and make room for digital cash, called central bank digital currency or CBDC in short.
What Is CDBC?
CBDC is a brand new digital currency operated and fully regulated by a financial authority that belongs to a sovereign country. CBDC does not involve any local banks to function, Instead, it works on the internet, similar to cryptocurrencies.
At the same time, CBDC is different from a decentralised type of currency such as Bitcoin since it is controlled by a central bank and their own unique blockchain system. CBDCs can be programmed and they can make money function online, significantly cutting the processing time and the associated costs, while offering higher levels of fidelity on all transactions.
This type of currency also has the role of offering stability in terms of pricing as well as more stability from a financial point of view. CBDC comes with a handful of one-of-a-kind benefits, including:
Money will continue to be at the center of such a CBDC-based system and keep being issued and managed by trustworthy institutions with strong public policies, for non-profit goals. However, central bank money is expected to evolve and become 100% compatible with the digital future.
Like other global central banks, Middle Eastern banking institutions fear that CBDCs may have serious effects on their customers’ deposits. Accordingly, they are working on generating the right solutions to these potential problems. While these currencies might still take a few years to become a standard in the economy of Middle Eastern countries, crypto assets and stable coins are already part of the present, which would make the development of CBDCs even more urgent.
Plus, several world governments have already initiated their experiments concerning the viability of CBDCs, even though none of them have officially launched their CBDCs so far. Sweden plans on officially releasing its own CBDC in 5 years’ time. China is currently testing its own currency. What about the Middle Eastern region?
Trends of CBDCs in the Middle East
Saudi Arabia, Oman, Kuwait, Iran, UAE, Iran and other nations in the region are used to heavy reliance on their petroleum resources to show economic growth on a year over year basis. Given the international trends towards green energy-generating alternatives and the United State’s recent shift to petroleum exporter, many of these states are seeking to redirect their economies towards more diverse investments. With a dearth of other natural resources, alternative sectors like high-tech, tourism, and finance will become more and more important.
Central banks in the UAE and Saudi Arabia have partnered up and worked on a number of blockchain-based projects to help bolster their financial sectors. Additionally, these entities have expressed clear interest in cryptocurrency apps. Their test projects involving blockchain technologies have so far been very popular. The two countries agreed that a dual-issued CBDC currency could be technically created and used across the borders for making payments. CBDC would be superior to the standard SWIFT centralised payment system the two countries are used to, as it would work a lot faster and more efficiently.
Nonetheless, competition is expected to be fierce given the fresh fintech businesses that rely on Bitcoin and other alternative digital assets. Open financial techs are also rising right now, which means that Middle Eastern countries currently working on releasing their own CBDCs will be facing even more pressure in the upcoming years.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.