Reinventing Money:

The Middle East Council on Global Affairs (ME Council) held a two-day roundtable discussion on Central Bank Digital Currencies (CBDCs) and their implications on May 10 and 11, 2024 in Istanbul, Türkiye, and in collaboration with the UNDP’s Istanbul International Center for Private Sector Development.

His Excellency the Governor of the Central Bank of the Republic of Türkiye Fatih Karahan and Distinguished Professor of Economics Barry Eichengreen delivered the keynote addresses. The roundtable provided a platform for representatives of regional central banks and international financial institutions to discuss the opportunities and challenges in adopting CBDCs, with a focus on the Middle East and North Africa (MENA) region. The roundtable also served as a catalyst for further dialogue, collaboration, and innovation in the realm of digital currencies and their role in shaping the future of global finance.

The discussion emphasized the potential of CBDCs to reshape the international monetary and financial landscape, highlighting both their promises and challenges. In the beginning, the participants contextualized the urgency for CBDCs within the backdrop of historical financial crises, particularly referencing the Asian financial crisis and the 2008 financial meltdown. They emphasized that the current inverted pyramid structure of the financial system is unsustainable and identified central banks as key players with the potential to revolutionize the payment industry through the adoption of digital currencies and instant payment systems.

The attendees then discussed the rapid development of CBDCs globally, with 68 countries currently in advanced stages of exploration—development, pilot, or launch. Overall, 70% of countries are either exploring CBDC development or in piloting phases. The discussion underscored the urgency for countries to explore the adoption of CBDCs, with central banks facing complex implications as the global adoption of digital currencies accelerates towards the projected horizon of 2030. The participants recognized that central banks in MENA, particularly, may need to hasten the implementation of CBDCs to keep pace with other countries.

The discussion also delved into the geopolitical context, particularly the dynamics between the United States and China in the realm of CBDCs. The attendees also shed light on the myriad challenges and risks associated with CBDCs, including security concerns, regulatory frameworks, and cross-border remittance complexities. That said, they also highlighted the motivations for central banks exploring CBDCs, such as financial inclusion and independence from the U.S. dollar for cross-border transactions, which call for efficient systems and consideration of the impact of instant payments on existing financial systems. Moreover, the discussion touched on how CBDCs can enhance monetary policy transmission, provided they are well-designed and internationally coordinated to mitigate spillover effects.

The participants reflected on their countries’ CBDCs experiences, providing examples such as the Turkish central bank’s efforts to develop a digital Turkish Lira, practical solutions for cross-border payments in Egypt and Jordan, and initiatives to address financial inclusion and balance of payments issues in other countries. To advance CBDCs efforts in the MENA region, the discussants stressed the importance of public-private collaboration in developing digital payment systems, along with technical collaborations between central banks, albeit with a cautious approach.

The attendees also discussed facilitating the adoption and implementation of CBDCs and suggested establishing regulatory sandboxes, exploring FinTech platforms, and finalizing proof of concept testing for cross-border payments. Additionally, some called for greater international cooperation, standardization of interoperability and security frameworks, and continued partnerships between central banks and private sector entities. They also highlighted the potential use of blockchain technology in CBDCs, including permissionless vs. permissioned ledgers and encryption methods.