Fin Tech Focus

Bahrain leading the way

January 29 - February 04 , 2020

Gulf Weekly Naman Arora
By Naman Arora

Gulf Weekly Bahrain leading the way

World Economic Forum 2020 held in Davos, Switzerland concluded last week, with a monumental achievement and task ahead as the Central Bank of Bahrain (CBB) has been chosen as the first central bank to employ the World Economic Forum’s (WEF) newly released tool kit for determining if the nation would benefit from implementing a Central Bank Digital Currency (CBDC).

A CBDC is a digitised sovereign currency issued by a nation’s central bank, which would be similar to current public blockchain networks. Despite strong initial resistance, bankers and policy makers have flipped on the issue of CBDCs and are designing frameworks to issue their own.

Rasheed Al Maraj, governor of the CBB, said: “We will pilot the new toolkit developed by the World Economic Forum. We hope that it will be an opportunity to learn, grow and to adapt to the changes in the Fourth Industrial Revolution.”

Bahrain has been a leader in blockchain in the Gulf region. Last year, the CBB released regulatory guidelines for blockchain start-ups, and has encouraged blockchain businesses to set up shop locally. Bahrain is also a leading financial hub for the Middle East and North Africa. The kingdom has also made international headlines for granting a regulatory license to Rain, the first Sharia law compliant cryptocurrency exchange.

The kingdom of Bahrain has become a leader in the region in regards to cryptocurrency and blockchain policy, so it makes sense that they would also be a leader in the region for pioneering CBDCs. Additionally, the CBB’s regulatory sandbox provides a contained environment in which to test an initiative as expansive as a CBDC before deploying it nationwide.

Sheila Warren, head of Blockchain and Distributed Ledger Technology at the World Economic Forum, commented: “Given the critical roles central banks play in the global economy, any central bank digital currency implementation, including potentially with blockchain technology, will have a profound impact domestically and internationally. It is imperative that central banks proceed cautiously, with a rigorous analysis of the opportunities and challenges posed.”

The WEF consulted with central bank researchers, global policy makers, international organisations and experts from over 40 institutions to create the CBDC Policy-Maker Toolkit. The toolkit is designed to help nations analyse and understand the viability of CBDC on a case by case basis. According to the WEF, the toolkit will provide risk-aware information to policy makers to better understand the trade-offs and benefits of deployment of CBDCs.

The document is intended to be a framework to assess the costs, risks, benefits, and retail, wholesale, cross‑border CBDC and alternatives in private money such as “hybrid CBDCs”. It provides guidelines for large developed economies as well as emerging developing economies to make policy decisions in a climate where no existing policy is available for reference.

World Economic Forum 2020’s top financial buzzword has been CBDCs. China’s announcement of a national CBDC has sparked a financial “arms race.” The Bank of International Settlements recently partnered with various central banks around the world to analyse CBDCs and how to implement them. The CBDC Policymaker Toolkit is freely available on the WEF website.

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