Thursday, April 15, 2021
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ReportGCC central bank digital currency pilot project a success; lays foundation for...

GCC central bank digital currency pilot project a success; lays foundation for blockchain payment ecosystem

The central banks of Saudi Arabia and the UAE have concluded their years-long pioneering cryptocurrency project and deemed it a success, offering a proof of concept to support other central banks in building a cross-border payment ecosystem powered by distributed ledger technology (DLT).

Dubbed Project Aber, the joint project by Saudi Central Bank (SAMA) and the Central Bank of the UAE (CBUAE) was initiated in January 2019 to circumvent inefficiencies in existing cross-border interbank payment mechanisms using DLT, more specifically through a dual-issued digital currency. The project involved six commercial banks from both countries, half of which were Islamic: Al Rajhi Bank, Alinma Bank, Riyad Bank, Dubai Islamic Bank, First Abu Dhabi Bank and Emirates NBD.

After various trials and experimentation, the project confirmed that a dual-issued central bank digital currency is technically possible, allowing two countries significant improvement over centralized payment systems in terms of architectural resilience. It was found that with such a currency, transfer times and costs between commercial banks are reduced.

“Such an instrument could be especially useful in a region like the GCC states where there is substantial intra-region trade and movement of citizens and residents. This could address an inefficiency in the existing correspondent banking-based payment systems that often results in delays and required commercial banks to maintain substantial Nostro accounts with their correspondent banks,” SAMA and CBUAE noted in a joint report on Project Aber.

Nonetheless, there remains several business challenges to the mechanism including discrepancies in the ways which interest calculations are to be made and finality of settlement.
The findings from this pilot project could provide the basis for a backup to domestic and regional real-time gross settlement in the future as well as provide a more distributed and potentially resilient alternative to existing centralized systems.

“By offering a DLT-based payments rails, there is the possibility to expand to delivery versus payment scenarios such as using the Aber network as a means of settlement for other forms of transaction, such as the sale of bonds or other dematerialized assets. Thirdly, there is the possibility of extending it geographically to include regional or other international central banks or linking heterogeneous networks together,” expounded the regulators.

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