The International Monetary Fund (IMF) claims that, even when not intended, a central bank’s digital currency can impact monetary policy by increasing money velocity, disintermediation, volatility of bank reserves, currency substitution, and altered capital transfers.
In the Islamic banking system, a CBDC could have a lot of unintended consequences. The Islamic financial system is now present in 34 countries and systemically crucial in 15 countries, making up less than 2% of global finance. Iran and Sudan are the only countries whose banking systems are exclusively Islamic. According to the paper, ten Islamic-financial countries, including Iran, are presently evaluating CBDCs.
Islamic prohibitions against usury and speculation confound the CBDC design. Since speculation isn’t allowed, CBDC can’t be used for transactions involving foreign exchange derivatives, significantly affecting how liquidity is managed.
“Islamic liquidity management instruments […] continue to develop slowly due to unsupportive regulations, sharia-compliance complexities, limited standardization, the small number of Islamic banks and the underdeveloped financial sectors in many of the countries.”
In the meantime, the infrastructure for Islamic banking needs to be improved in many nations, resulting in more than just the currency held by Islamic institutions. The risk of bank disintermediation is increased since neither deposits in Islamic finance banks nor those compliant with Islamic law would pay interest.
The Islamic world has yet to respond uniformly to cryptocurrency. In some countries, crypto adoption in the Middle East and North Africa has expanded rapidly, while in others, it has stagnated. Even Islamic scholars have differing opinions.
For example, the Securities Commission Malaysia Shariah Advisory Council adopted a favourable attitude towards crypto trading, but Indonesia’s National Ulema Council came to the opposite conclusion. Additionally, Iranian business interests have supported using cryptocurrencies in foreign trade.
If you are interested in the subject. This #IMF report just came out. Monetary Policy Implications of #CBDC
Perspectives on Jurisdictions with
Conventional and Islamic Banking Systems. #Blockchain #CrossBorderPaymentshttps://t.co/BNzrfSgkxv pic.twitter.com/Gtz741Kqs0— Michel_Crypto.XDC #iso20022 (@MichelCrypto1) March 19, 2023
