On Sunday the Qatar Central Bank announced it has completed the development of its central bank digital currency (CBDC) infrastructure and plans to commence testing in October. Trials will target high value payments, particularly for the settlement of securities transactions, implying this is likely a wholesale CBDC solution. Both local and international banks will participate in the testing.
Qatar’s CBDC project uses artificial intelligence, distributed ledger technology (DLT) and other emerging technologies.
Compared to other Arab nations, Qatar’s banking sector is more internationally diversified with around 30% of deposits from foreigners, according to the IMF. However, the banking sector is heavily concentrated with its largest bank, the Qatar National Bank, having a 56% market share of deposits.
Like several other Middle Eastern nations, Qatar’s Riyal is pegged to the US dollar.
Meanwhile, last year the Qatar Financial Centre Authority (QFCA) announced a collaboration with enterprise blockchain firm R3 to support the QFC’s use of DLT nationally. It created a lab environment to help commercial banks and fintechs experiment with DLT.
In a recent IMF paper, the Fund modeled the adoption of a retail CBDC in three Middle Eastern countries, including Qatar. One of the reasons for its selection is its high degree of digitalization. Cash makes up just 2.18% of the money supply. The paper concluded that if the CBDC was accessible to foreigners, it would reduce foreign deposits by up to 26%. Given the dependence on foreign deposits is viewed as risky, it is seen as positive for financial stability but not necessarily for the exchange rate.