UAE, Saudi Arabia to test digital currency for cross-border settlements

The United Arab Emirates and Saudi Arabia plan to test a digital currency for cross-border settlements, the UAE’s central bank has said.

Governor Mubarak Rashed al-Mansouri, speaking at a financial technology conference in Abu Dhabi, also said the UAE central bank was working on a strategic plan to develop fintech, which would be supported by a legislative and regulatory framework.

Mansouri said fintech could play a major role in improving financial inclusion -the provision of affordable financial services across the economy -and noted that the legal mandate of the central bank now included fostering financial inclusion.

For the joint digital currency, the UAE and Saudi central banks have launched a distributed ledger “proof of concept” system to facilitate cross-border settlements, he said. The digital currency is backed by fiat currencies of the two nations.

Read: UAE, Saudi working on digital currency

“We hope that the potential success of this initiative will foster similar collaboration in the GCC (Gulf Cooperation Council) region and globally,” Mansouri said.

The central bank later clarified that the blockchain system was “still at an early stage” and would help it gain a deeper understanding of the feasibility of distributed ledger technology.

“CBUAE and SAMA (Saudi Arabian Monetary Authority) have selected a tech company to support the implementation of this PoC, which is expected to be completed in the last quarter of 2019,” it said in a statement.

“The project started with initial knowledge transfer sessions, and is currently in the phase of business and technical requirements gathering.”

The outcome of the proof of concept will determine if the digital currency can be introduced for normal market operations between the two countries.

Meanwhile, the UAE central bank has issued regulations for stored value facilities (SVFs), setting out requirements for consumer-focused digital payment services, he said. SVFs are a form of prepaid electronic cash or card.

Mansouri added that the central bank was finalising its crowdfunding rules, which would protect consumers when crowdfunding platforms began to play a bigger role in the UAE.

With contributions from Reuters