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Saudi Arabia joins China and UAE in digital currency project

The kingdom is joining the Switzerland-based Bank for International Settlements' central bank digital currency platform.
Digital generated image of futuristic cubes connecting computer microchip. Cloud technology, big data or fintech technology. Concept of the new digital currency CBDC.

Saudi Arabia is the latest country to join a multi-country initiative for central bank digital currency (CBDC), amid increasing interest from the Gulf state in futuristic forms of money.

The Bank for International Settlements (BIS) announced on Wednesday that Saudi Arabia is joining Project mBridge as a “full participant.” The project explores a multi-central bank digital currency platform to enable cross-border payments, the bank said in a press release on Wednesday.

BIS is a financial institution that is owned by its member central banks. The bank’s goal is to support cooperation between central banks and serve as a bank for the central banks. The central banks of Saudi Arabia, the UAE and Israel are among the bank's 63 members.

Work on Project mBridge began in 2021 via collaboration between BIS, the Central Bank of the United Arab Emirates, the People's Bank of China, the Hong Kong Monetary Authority and the Bank of Thailand. There are additionally 26 observer members in the project, according to BIS.

What it means: Digital currency refers to currency that is available solely in digital or electronic form. As a result, digital currencies can be accessed only via a computer, smartphone, tablet or the like. A CBDC refers to a digital currency issued by a central bank and serves as a digital form of a country’s fiat currency that is equivalent in value. Cryptocurrency is another form of digital currency.

Approximately 135 countries and currency unions are exploring CBDCs, according to Reuters, though the use of CBDC as an alternative to hard currency is not widespread at present. The US Federal Reserve is among the institutions considering the launch of a CBDC.

Project mBridge was launched to make payments between different countries faster, less expensive and better equipped to deal with locales that are not well connected to the global financial system, according to BIS.

“Multi-CBDC arrangements that connect different jurisdictions in a single common technical infrastructure offer significant potential to improve the current system and allow cross-border payments to be immediate, cheap and universally accessible with final settlement,” the bank said in the release.

Why it matters: Saudi Arabia’s admission to the Bank for International Settlements’ CBDC project comes amid growing interest in digital currency in the region. In March, the Israeli cryptocurrency firm Bits of Bold announced plans to launch a digital coin backed by shekel.

The same month, the UAE Central Bank said it would begin work with India related to the feasibility of a digital dirham.

Saudi Arabia has demonstrated a particular interest in cryptocurrency. In September of last year, the blockchain analysis firm Chainalysis ranked the kingdom as the country with the highest growth volume of cryptocurrency transactions over the previous 12 months.

Know more: The growing interest in digital and cryptocurrency in the region coincides with efforts to reduce dependence on the US dollar. China is seeking to price oil transactions in yuan, an effort that may be boosted by the $6.93 billion currency swap agreement between the Saudi and Chinese central banks in November.

In March of 2023, China settled a gas trade with the UAE in yuan for the first time.

Russia and Iran, both subject to extensive Western sanctions, are seeking to ditch the US dollar in bilateral trade.