The Qatar Central Bank (QCB) has recently announced its Central Bank Digital Currency (CBDC) project, which is set to start before the end of 2024. The project will be a wholesale CBDC project that will utilize Artificial Intelligence (AI) technology. QCB clarified that the project will not involve real Qatari Riyals but rather simulations. The central bank initially revealed the completion of the infrastructure for the CBDC in June 2024 and the commencement of testing with local banks for large payment settlements. However, further details were not provided at that time. Now, the Qatar Central Bank has provided a comprehensive explanation of its digital currency project on its website.
The Qatar Central Bank is currently working on a wholesale CBDC project, although it may potentially extend to retail in the future. The use of CBDC is anticipated to enable the efficient settlement of ownership of financial digital securities, as stated by QCB on their website. The implementation of CBDC is expected to introduce a new form of financial market infrastructure that could enhance efficiency and reduce intermediation in financial markets. Initially, the wCBDC program will explore the issuance of digital government bonds as a means of providing fungibility between traditional financial securities infrastructure and the new digital form.
QCB has announced that selected local banks will have the opportunity to participate in the wCBDC project, which will be under the control of the central bank. Participant banks will have the ability to acquire CBDC by converting traditional Qatari Riyals in an RTGS settlement account to wCBDC. The conversion will be carried out on a 1:1 basis as wCBDC is denominated in QAR, thus having no impact on the bank’s balance sheet or the QCB’s balance sheet. The first phase of the project will involve initial experimentation using Distributed Ledger Technology (DLT) to evaluate the system alongside participant banks before deciding on further steps.
It is important to note that the initial phase of the CBDC project is purely a simulation and does not involve real money. The simulation is designed to be neutral to monetary policy if deployed with real money. QCB also emphasized that commercial banks stand to benefit from CBDCs for interbank payments, Delivery versus Payment (DvP) transactions, and instant 24/7 settlement. Commercial banks can also mint CBDCs, offer new services based on programmability, and issue tokenized deposits backed by fiat money deposits for payment and treasury operations for themselves and their clients.
For the initial phase, commercial banks can explore two main use cases for CBDC: payments and transfers in CBDC with instant 24/7 bilateral settlement on a gross basis, as well as the purchase of digital securities settled with CBDC. Additionally, commercial banks will have access to immediate settlement of financial market securities with CBDC, facilitating faster and more efficient transactions. In terms of utilizing AI in the CBDC project, QCB outlined plans to incorporate AI technology for a foundational liquidity forecasting model to assist in managing banks’ liquidity positions, enhancing operational efficiency.
In conclusion, the Qatar Central Bank’s CBDC project represents a significant step towards modernizing the financial infrastructure in Qatar. The implementation of a wholesale CBDC utilizing AI technology holds the promise of enhancing efficiency and reducing intermediation in financial markets. Selected local banks will have the opportunity to participate in the project, which will involve initial experimentation with Distributed Ledger Technology. The utilization of CBDC by commercial banks for interbank payments, DvP transactions, and other financial operations is expected to streamline processes and provide new opportunities for innovative services. Additionally, the incorporation of AI technology in the CBDC project is set to offer enhanced liquidity management capabilities for banks, ultimately contributing to a more robust and resilient financial system in Qatar.
