Earlier this year, the International Monetary Fund (IMF) released a report exploring the potential of a retail central bank digital currency (CBDC) in Jordan. The analysis concluded that a cross-border CBDC could address high transaction fees. However, regarding a more mainstream retail CBDC, barriers, such as financial illiteracy and cash-oriented business models, prevent people from extensively using digital payments.
Potential motivations for a Jordanian CBDC
One of the common drivers for a retail CBDC is to enable different payment systems to be more interoperable. However, when the IMF analyzed Jordan’s retail payment landscape, it found the domestic payment systems and cross-border remittance markets are “well integrated” with significant competition.
However, despite a suitable product offering and a relatively young, tech-savvy population, the study found several barriers preventing Jordanians’ widespread adoption of digital payments, including financial illiteracy, high transaction costs, and cash affinity. The mission thus identified three potential policy objectives where a retail CBDC could add value:
- Enhancing financial inclusion
- Improving domestic payments
- Reducing cross-border remittance costs
Limited domestic CBDC payments benefits
Regarding financial inclusion and domestic payments, the IMF believes a CBDC could offer some benefits but not necessarily address “pain points”. According to a 2022 study, financial inclusion in Jordan is currently at 43.1%, so a retail CBDC could potentially help to increase trust among the population and service residents who don’t have smartphones. Similarly, a CBDC’s public infrastructure might enhance interoperability across digital payment platforms and improve domestic payments.
However, the IMF believes familiar risks such as financial disintermediation and cybersecurity threats might outweigh the potential benefits for CBDCs at the domestic level. The Central Bank of Jordan (CBJ) will have to balance the policy trade-offs and potential risks in subsequent CBDC studies.
Cross-border CBDC potential
On the other hand, the IMF sees more significant potential in a cross-border CBDC, particularly if the central bank is able to coordinate with other countries in the region. According to local sources, almost 800,000 Jordanians were working abroad in 2019, about 11% of the population. These expats tend to be highly skilled and send remittances that constitute an essential part of Jordan’s current account balance since they help to offset the country’s massive imports (perhaps as high as 80% of GDP).
Conversely, Jordan has a high domestic migrant population, consisting mainly of low-skilled workers from Egypt and Syria, which makes up nearly 50% of the workforce.
A cross-border retail CBDC could lower transaction costs for both groups by allowing foreign payment service providers access to the domestic payment system and establishing remittance corridors between neighboring countries.
The IMF has offered the Central Bank of Joran further technical assistance in exploring a retail CBDC.