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The Arab Monetary Fund (AMF) considers global payments network RippleNet as a good alternative to central bank digital currencies (CBDC’s).
In a new report, the AMF’s Arab Regional Fintech Working Group sees potential risks for nations when issuing a CBDC, which includes the possibility of the local currency to ultimately lose its basic utility. The report said:
“There are many risks associated with the international positions on local CBDC’s ranging from the risk of ‘digital dollarization,’ international spill overs 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 CBDC’s to non-residents 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.”
Included in a list of CBDC alternatives which offer similar utility but are less risky are the international SWIFT payments system, banking application Revolut, London-based fintech company Wise, and RippleNet, part of Ripple Labs.
Nevertheless, the CBDC alternatives all have their own flaws as well, the group notes without going into detail:
“Most of these non-CBDC alternatives have significant limitations or flaws. As a result, many central banks continue to undertake proof of concepts or pilots with CBDC.”