We have seen several central banks contemplate issuing their own digital currencies. So far, none of these projects have actually come to fruition. A new partnership between the UAE and Saudi Arabia’s central banks may change all that in the near future. Both entities are working on their own digital currency and blockchain-based system.
Another Bank-issued Digital Currency Project
Central banks have opposed Bitcoin and other cryptocurrencies for several years now. Given the uncontrollable and volatile nature of this new form of money, their opposition isn’t entirely surprising. However, these institutions have been taking a liking to the idea of creating their own digital currencies when the time is right, though when and if that time will come remains to be determined. Some institutions are currently working on doing exactly that.
More specifically, the central banks of the United Arab Emirates and Saudi Arabia are collaborating on a blockchain-based system. The goal is to issue a cryptocurrency to ease cross-border transactions for these two countries specifically. It is an interesting concept, although everyone will immediately acknowledge the usability of the new currency will be somewhat restricted. If central banks issue dedicated digital currencies to conduct transactions with one or two other countries, things will start to look a bit bleak.
One has to acknowledge, though, that this collaboration between two monetary authorities from different countries is rather significant, especially when it comes to blockchain technology and new digital currencies. Most countries don’t see eye-to-eye when it comes to developments like these, although things are certainly changing for the better. Whether or not this venture will be more successful than other attempts by central banks remains to be determined.
As one would expect, the project is still in the very early stages of planning right now. No code has been written, and it is unclear which blockchain provider will be used. There is no specific time frame for this project, but an open dialogue between the two monetary authorities is a good place to start. A thorough study will need to be conducted before these plans can move forward in an official capacity.
Considering that only the two participating central banks will be able to use this new digital currency, it remains to be seen how much more efficiency the currency will provide. It will never be made available to retail consumers, nor can anyone invest in this project. It is certainly true that central banks can benefit from more efficient and faster operations, but whether or not a new currency is necessary to facilitate this remains to be determined. It is good to see these entities explore all options at their disposal, though.
When this project was unveiled, both central banks confirmed that regulators will need to closely monitor the risks associated with advances in cryptocurrency and fintech. Every new form of innovation has both advantages and drawbacks. It is appropriate to address all of these factors before things get out of hand. This doesn’t mean Bitcoin and other cryptocurrencies will face additional regulatory scrutiny in either the UAE or Saudi Arabia, though.