Iraq has shown its intention to participate in the race for the Central Bank’s Digital Currency (CBDC), which begins with a series of experiments aimed at strengthening its payment ecosystem.
Digital dinars complement existing payment options while operating in a similar way to cash. Financial advisor to Iraqi Prime Minister Mujr Mohammad Sale has confirmed the government’s plans to deploy the country’s retail CBDC.
Saleh said the Central Bank of Iraq (CBI) will take the lead in designing digital dinars with the intention of exploiting various economic benefits. At this point, technical details of the launch are unknown, but Saleh said the benefits of digital dinars are broad.
First of all, digital dinars reduce printing costs and reduce cash dependency while circulating money within the banking system. Through this initiative, Iraq aims to improve fiscal efficiency and increase control of the financial system for the central bank.
The issuance of CBDC “will increase transparency, increase control of fiscal flows, and increase the ability to track digital liquidity and spending patterns, whether it is consumption, savings or investment,” Saleh said.
An important point in Saleh’s theory is the possibility of efficient capital transfers while tackling the tragedy of money laundering.
Saleh tried to ease the horror surrounding the launch of the CBDC. This noted that the system ensures user privacy. Saleh did not reveal exact guardrails for privacy protection, but Pundits says the CBI follows a colleague’s lead in designing the CBDC.
“We need a strong technological infrastructure, including trusted, advanced internet networks, and advanced cybersecurity systems to protect data and transactions.”
While having the same functionality as cash, incoming CBDCs offer digital payment capabilities designed to improve the Iraqi financial ecosystem.
Aside from domestic payments, there is a proposal to renovate the cross-border payments capabilities in digital dinars. Experts have leaned towards CBDC to integrate the integration of offline payments capabilities for Middle Eastern countries into CBDC.
Its neighbours, Iran and Jordan, are leading the development of CBDCs in the region and inching towards commercial deployments. Iran’s CBDC is expected to help the country avoid international sanctions to strengthen relations with Russia.
Israel advances with CBDC experiments
Elsewhere, the Bank of Israel (BOI) announced a preliminary design for the proposed digital shekel after tinkering with the concept of CBDC in 2017.
According to a press release, the document follows the completion of a high-level design for the digital shekel in late 2024. As CBDC approaches its next stage, it is a call for public feedback.
At first glance this document reveals some important information about the design of digital shekels, from architecture to recommendations for proposed policies.
Boi says the digital shekels will be open to the public to fully access tourists, children and businesses. The basic use cases for individuals are free, but there are costs for businesses using CBDC. This is “significantly lower than existing digital payments” by the central bank.
This document reviews the integration of digital shekel’s offline payment capabilities to support transactions without an internet connection. However, this paper makes it clear that CBDC does not advance programmer-like functionality but is unable to provide a clear reason for the decision.
Another perk associated with digital shekels is that it is intended to be a “universal payment method” similar to cash. Users will add the convenience of digital payments, but privacy rights remain a concern.
Banking regulators have revealed that digital shekels support fully anonymous payments for transactions below certain thresholds. To alleviate fear, the paper confirms that users’ personal information is not available to the central bank but is retained by payment service providers.
For operation, central banks are focusing on the two-tier model, ropes in the private sector as digital shekel payment service providers and interact with end users. These entities do not retain client funds and are protected from financial risks caused by financial mediation.
Despite this development, BOI executives are still unsure about the economic viability of retail CBDCs after conducting multiple studies. Amid this uncertainty, banks are moving their experiments forward to keeping pace with other central banks who are rushing towards the commercial deployment of CBDCs.
“The Bank of Israel has not yet decided whether to issue digital shekels, but it is important to prepare and deepen knowledge and understanding along with the ecosystem of each of the possible components of the digital shekel system.”
The Israeli cross section anticipates the release of digital shekels, citing a positive competition between it and offerings from traditional financial institutions.
Watch: CBDC is more than just digital money
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Bank of IsraelCentral bank digital currencyIraq Central BankDigital DinnerDigital paymentDigital ShekelIraqIsraelpayment
