Crown Prince Mohammed bin Salman of Saudi Arabia arrived in the UAE on November 27 for an official state visit. The purpose of this visit is to discuss various joint policy initiatives that include plans to launch a joint digital currency. This digital currency will be a wholesale CBDC. This means it will only be used by banks for settlements.
The Four New Areas of Cooperation
It was revealed that the Mohammed bin Salman and his counterpart Sheikh Mohamed had agreed to cooperate on four new policy areas. Meanwhile, seven strategic initiatives are under review.
One of the agreements was that they build a giant oil refinery with a processing capacity of 1.2 million barrels daily. Additionally, they agreed to create a joint wholesale CBDC that would be used for interbank transactions between the two nations, according to The National.
The nations also agreed to improve their cooperation in cybersecurity to prevent attacks. During the meeting, the Saudi-UA Co-ordination Council also reviewed various strategic initiatives that include the issuance of a joint tourism visa. Various other issues were covered during the meeting including conflicts around the region. Both of these nations have been partners on various issues in the past and the decision to unite their financial systems with a common digital currency will deepen their ties.
Details about the Digital Currency
This digital currency will be used for interbank transactions between the UAE and Saudi Arabia. The UAE Central Bank and the Saudi Arabian Monetary Authority will coordinate its issuance. These two agencies had released details about the “Aber” digital currency in January this year.
At the time, the two institutions revealed that the Aber would only be used for financial settlement between banks. They also said it would be powered by the blockchain and the distributed ledger technology and would only run for a trial period. Additionally, it would only be limited to a few banks in the two nations.
According to the joint statement, the two nations agreed to launch the project since they already have a central system for domestic transactions and remittances. These systems have proven quite feasible over time. However, they noted that some aspects of international remittances still needed to be worked on. They concluded that after the trial run, they might find that a joint digital currency could help to improve international remittances.
In the future, they might also consider using the digital currency system as a backup reserve system for the domestic central payments settlement system in case disruptions arise. The two institutions believe that this pilot project will be of benefit to the citizens of the two nations as well as internationally. Not only do these two nations want to be pioneers in the use of modern technology, but they also want to be pioneers when it comes to the mass adoption of such technology by the world.
Some of the immediate benefits such a project would bring for the two nations include lower settlement costs as well as higher speeds. The result could be improved efficiency for their economies. This development comes at a time where many countries have different opinions on cryptocurrency. It will be interesting to see the industry "first mover advantage" and how it shapes the overall movement long-term.
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