JAKARTA – The organization under the auspices of the Arab League, the Arab Monetary Fund (AMF) stated that the global payment network RippleNet is an alternative that can be used to build a central bank currency or CBDC.
In a new report, the AMF Arab Regional Fintech Working Group said there are considerable risks for a country to issue a CBDC, including the possibility that the local currency may eventually lose its basic utility.
“There are many risks associated with international positions on local CBDCs ranging from the risks of 'digital dollarisation,' international impacts and impacts on the role of international currencies. If a CBDC is used outside its jurisdiction successfully, this could cause the local currency to lose its function as a medium of exchange, unit of account, store of value and ultimately increase financial stability risks," AMF said as quoted by TheDailyHodl.
“In addition, issuing CBDCs to non-residents may result in increased exchange rate volatility and changes in the dynamics of capital flows because the characteristics of CBDCs make them attractive to investors as an alternative financial instrument.”
The group compiled a list of alternatives to CBDCs that could provide similar utility but with less downside risk. Among those mentioned are payment system SWIFT International, banking app Revolut, London-based fintech firm Wise, and RippleNet, Ripple Labs' real-time settlement system.
Even so, AMF considers that the alternative companies cannot be separated from their respective shortcomings, including the problem of "limitations" before being widely adopted, forcing the central bank to continuously test the CBDC.
“Most of these non-CBDC alternatives have significant limitations or drawbacks. As a result, many central banks continue to carry out proof-of-concept or pilot projects with CBDCs,” said AMF.
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