IMF Staff Country Reports

Kingdom of Bahrain: Selected Issues

September 18, 2023

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International Monetary Fund. Middle East and Central Asia Dept. "Kingdom of Bahrain: Selected Issues", IMF Staff Country Reports 2023, 333 (2023), accessed December 19, 2024, https://doi.org/10.5089/9798400254581.002

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Summary

This Selected Issues paper on the Kingdom of Bahrain presents a counterfactual analysis on financial system effects of introducing a Central Bank Digital Currency (CBDC) in Bahrain. Bahrain has made significant strides in the areas of fintech and the adoption of digital payments. The analysis presented in this paper aims to assess some of these benefits and risks for Bahrain. It will quantify the potential impact of introducing a CBDC on the financial system and monetary policy transmission using a model specifically calibrated and estimated for Bahrain. It finds that a CBDC's perceived utility by the population is key for wide adoption. While high adoption and remuneration can help enhance monetary policy transmission, they may imply a drag on banking system profitability. A careful and analytically informed design could enhance adoption while limiting risks to financial stability. CBDC introduction strengthens monetary policy pass-through and more so if it were remunerated.

Subject: Bank deposits, Central Bank digital currencies, Central bank policy rate, Commercial banks, Deposit rates, Financial institutions, Financial services, International organization, Monetary policy, Technology

Keywords: Bank deposits, Base utility, Central Bank digital currencies, Central bank policy rate, Commercial banks, Counterfactual simulation result, Deposit rates, Design choice, Dynamics in Bahrain, Financial system effect, Global, Lower bound scenario, Model parameterization

Publication Details

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