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Saudi, UAE central banks reveal results of joint digital currency project

November 30, 2020
banking

The project confirmed that DLT can provide central banks with the ability to reimagine both domestic and cross-border payment systems in new ways

The Saudi Central Bank (SAMA) and the Central Bank of the UAE (CBUAE) have launched Aber, a joint digital currency and distributed ledger, as a proof-of-concept (POC) project.

The initiative sought to explore whether distributed ledger technology (DLT) could enable cross-border payments between the two countries using a new, dual-issued digital currency as a unit of settlement between commercial banks in the two countries as well as domestically.

The Aber report aims to significantly enrich knowledge content in the field of DLT and Central Bank Digital Currencies, in addition to laying the foundations for future work to be explored in the coming years.

The main objectives of the initiative are:

  • To explore, experiment, and gain a deeper understanding of distributed ledger technology (DLT) and analyse its maturity
  • To explore an alternative DLT-based cross-border payment solution that can overcome inefficiencies in existing cross-border interbank payment approaches
  • To understand and experiment with the dual issuance of a central-bank digital currency
  • Benchmark findings against those of other central banks.

The project is structured into three distinct phases or use cases:

  • Use case one to explore cross-border settlement between the two central banks;
  • Use case two to explore domestic settlement between three commercial banks in each country
  • Use case three to explore cross-border transactions between the commercial banks using the digital currency.

Many key principles were agreed by all participants to guide the execution of the project.

Firstly, commercial banks must be active participants, running local nodes on the network and engaging the fullest from a technical and business perspective throughout the lifecycle of the project.

This ensures that the employees of both central and commercial banks would benefit from the acquisition of knowledge around this new technology and also so that the project could be better informed as to challenges, risks, or improvements, from a commercial bank perspective, that would need to be addressed if the full value of the technology was to be realized in this context.

Secondly, real money would be used in the project. This is important because it forced greater consideration of the non-functional aspects, such as security, that would need to be addressed moving forward; and also how the system would interact with existing payment systems, such as the domestic RTGS system.

Thirdly, rather than simply replicate the way in which conventional payment systems work, the project seeks to explore how such systems can leverage the unique characteristics of DLT to drive greater levels of distribution. By doing that, it tries to develop a system that was more resilient to single points of failure.

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