Qatar Central Bank explains details of its CBDC project

The Qatar Central Bank (QCB) has published a full explanation of its CBDC (Central Bank Digital Currency) project on its website.

The central bank stated that the project will start before the end of 2024, noting that it will be a wholesale CBDC project utilizing AI (Artificial Intelligence). The project will not be using real Qatari Riyals but simulations.

When QCB announced in June 2024 that it had completed the infrastructure for a CBDC and would commence testing for settlement of large payments with local banks, no further information was provided. Today, however, the Qatar Central Bank has offered a detailed explanation for its digital currency project.

Qatar is working on a wholesale CBDC project

So, first, while the project is a wholesale CBDC (wCBDC) project, it might extend to retail in the future. In addition, QCB has noted that CBDC could be utilized for the efficient settlement of ownership of financial digital securities.

As stated on their website,

“Their implementation provides for a new form of financial market infrastructure (FMI) to be deployed which may improve efficiency and reduce intermediation of financial markets.”

In addition, the wCBDC program will first investigate the issuance of digital government bonds, which are digital copies of existing bonds and, therefore, provide fungibility between the traditional financial securities infrastructure (FSD) and the new digital form.   

QCB to select local banks for the CBDC project

QCB has noted that selected banks will be able to participate in the wCBDC project and will be controlled by the bank. As per the QCB, participant banks can acquire CBDC by converting traditional QAR in an RTGS settlement account to wCBDC. As wCBDC is denominated in QAR, the conversion is on a 1:1 basis and, therefore, has no impact on the bank’s balance sheet. Also, there is no impact on QCB’s balance sheet.   

In the first phase, QCB is conducting an initial experimentation and will evaluate it together with the participant banks before deciding on any further steps. The CBDC program will utilize Distributed Ledger Technology (DLT).

As per Qatar Central Bank, this will allow them to govern the system and align it to Qatari laws and regulations.      

It is a simulation; no real money is involved

The initial phase is only a simulation and is not conducted with real money. The program is also designed to be neutral to monetary policy should it be deployed using real money.      

The QCB has noted that commercial banks can benefit from CBDCs for interbank payments and DvP transactions instantly, 24/7. Commercial banks can also distribute minted CBDCs and offer new services based on programmability.

Commercial banks could also issue tokenized deposits backed by fiat money deposits and use them in payment and treasury operations for themselves and their clients.    

For the first phase, commercial banks can explore two use cases: payments and transfers in CBDC, instant 24×7 bi-lateral settlement on a gross basis, and the purchase of digital securities settled with CBDC. Additionally, commercial banks can access immediate and 24×7 settlement of financial market securities with CBDC.

Finally, in terms of the utilization of AI in the CBDC project, the project will leverage AI technology to provide a foundational liquidity forecasting model to help manage the banks’ liquidity positions.