Iraq has signaled an intention to join the race for a central bank digital currency (CBDC), beginning with a series of experiments aimed at enhancing its payments ecosystem.
The digital dinar will complement existing payment options while operating similarly to cash. Iraqi Prime Minister Muzhir Mohammad Saleh’s financial advisor confirmed the government’s plan to roll out a retail CBDC for the country.
Saleh said the Central Bank of Iraq (CBI) will spearhead the design of the digital dinar with the intention of harnessing a range of economic benefits. While the technical details of the launch are unclear at the moment, Saleh says the benefits of the digital dinar will be extensive.
For starters, the digital dinar will reduce cash dependency while lowering printing costs and ensuring monies circulate within the banking system. Through this initiative, Iraq seeks to enhance fiscal efficiency while providing the central bank with increased control over the financial system.
The issuance of CBDC “enhances transparency, control over financial flows, and the ability to track digital liquidity and spending patterns, whether for consumption, savings, or investment,” said Saleh.
A key point in Saleh’s theory is the potential for efficient capital transfers while tackling the scourge of money laundering.
Saleh attempted to allay fears surrounding a CBDC launch, noting that users’ privacy will be guaranteed under the system. Saleh did not reveal the exact guardrails for privacy protections, but pundits say the CBI will follow the lead of its peers in designing a CBDC.
There is the need for “strong technological infrastructure, including reliable and advanced internet networks, and advanced cybersecurity systems to protect data and transactions,” said Saleh.
While having the same functionalities as cash, the incoming CBDC will offer digital payment capabilities designed to improve Iraq’s financial ecosystem.
Outside of domestic payments, there are suggestions that the digital dinar will be retrofitted with cross-border payment functionalities. Experts are tipping the integration of offline payments functionality into the CBDC to spike financial inclusion levels for the Middle Eastern nation.
Its neighbors, Iran and Jordan, have taken the lead in CBDC development in the region, inching toward a commercial rollout. Iran’s CBDC is expected to help the country sidestep international sanctions as it strengthens ties with Russia.
Israel advances with CBDC experiment
Elsewhere, the Bank of Israel (BOI) published the preliminary design for the proposed digital shekel after tinkering with the concept of a CBDC in 2017.
According to a press release, the document follows the completion of a high-level design for the digital shekel in late 2024. Alongside the publication is a call for public feedback as the CBDC approaches its next stage.
A cursory glance at the document reveals several key pieces of information about the digital shekel’s design, from its architecture to proposed policy recommendations.
The BOI says the digital shekel will be open to the public, with full access to tourists, children, and enterprises. While basic use cases for individuals are free, businesses using the CBDC will incur costs, which the central bank says will be “significantly lower than existing digital payments.”
The document confirms the integration of offline payment functionality for the digital shekel, supporting transactions without Internet connectivity. However, the paper clarifies that the CBDC will not proceed with programmability functionalities but fails to give clear reasons for the decision.
Another perk associated with the digital shekel is that it is intended to be a “universal means of payment” akin to cash. Users will have the added convenience of digital payments, but privacy rights remain a concern.
The banking regulator disclosed that the digital shekel would support fully anonymous payments for transactions below a certain threshold. To allay fears, the paper confirms that users’ personal information will not be available to the central bank but will be held by payment service providers.
For operations, the central bank is eyeing a two-tiered model, roping in the private sector as Digital Shekel Payment Service Providers to interact with end-users. These entities do not hold customers’ funds and are shielded from the financial risk stemming from financial mediation.
Despite this development, BOI executives are still unsure of the economic viability of a retail CBDC after conducting multiple studies. Amid this uncertainty, the bank is forging ahead with experiments to keep pace with other central banks that are hurtling toward a commercial rollout of CBDCs.
“The Bank of Israel has not yet decided whether to issue a digital shekel, but it is important for us to prepare, and deepen the knowledge and understanding together with the ecosystem regarding each of the possible components of the digital shekel system,” said Yoav Soffer, Digital Shekel Project Manager.
A cross-section of Israelis are anticipating the release of a digital shekel, citing positive competition between it and the offerings from traditional financial institutions.
Watch: CBDCs are more than just digital money