The Arab Monetary Fund (AMF), an Arab League sub-organization, has identified global payments network RippleNet as a possible alternative to central bank digital currencies (CBDCs).
According to a new report from the AMF’s Arab Regional Fintech Working Group, issuing a CBDC carries significant risk, including the possibility that local currencies will eventually lose their basic utility.
“There are many risks associated with the international positions on local CBDCs ranging from the risk of ‘digital dollarization,’ international spillovers and the impact on the international role of currencies.
If a CBDC is used outside of its jurisdiction successfully, this could lead to a local currency losing its function as a medium of exchange, unit of account, storage of value and eventually raises financial stability risks.
In addition, issuing CBDCs to nonresidents can result in an increase in exchange rate volatility and change in capital flow dynamics since CBDC characteristics make them appealing to investors as an alternative financial instrument.”
The group compiled a list of CBDC alternatives that could provide similar utility but with less risk. The international SWIFT payments system, banking app Revolut, London-based fintech company Wise, and RippleNet, Ripple Labs’ real-time gross settlements system, are among those mentioned.
Though no specifics were provided, the group acknowledges that CBDC alternatives have flaws that must be addressed before they can be widely adopted.
The vast majority of these non-CBDC alternatives have significant limitations or flaws.” As a result, many central banks are continuing to conduct proof-of-concept or pilot projects with CBDC.
