According to an IMF study, a purely Islamic banking system may not regard CBDC to be a friendly financial system.
At the current moment, more than 100 Central Banks are working on the Central Bank Digital Currency (CBDCs), to bring development in their current conventional digital payment systems. Various central banks are developing model-based CBDCs.
The International Monetary Fund (IMF) current published a CBDC study to address challenges linked with the CBDC design for the Islamic banking system.
According to the study, 34 Islamic countries are systemically important in 15 jurisdictions accounting for 2% of global finance.
Iran and Sudan have completely Islamic financial systems. However, only ten nations with an Islamic financial footprint are actively contemplating the formation of CBDCs.
There are several sophisticated restrictions in the Islamic financial system, and such laws are incompatible with other digital payment and financial systems. To summarize, CBDC may oppose the Islamic banking system.
According to an IMF study, the design of CBDCs may have an impact on liquidity management in the Islamic financial system.
An IMF study read that the standard procedures of liquidity management interbank market, secondary market financial instruments, central bank discount window, and Lender of Last Resort (LOLR) that are dependent on interest are not permitted for Islamic banks.
CBDC, according to the report, cannot be used in foreign exchange derivatives transactions in Islamic liquidity management instruments.
According to the paper, the Islamic financial system’s financial and banking infrastructure is not fully digitally developed, and the majority of money is held in cash, so the entry of CBDC into the Islamic financial system may pose a threat to banks’ supremacy.
Since late 2021, numerous Islamic countries have demonstrated a strong interest in the crypto business.
The Middle East and North Africa area, in particular, made crypto-friendly suggestions and welcomed several crypto enterprises to enhance digital advancements.
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