Saudi Arabia joins China and UAE in Digital Currency Initiative

Saudi Arabia has become the latest nation to join a multi-country initiative focused on central bank digital currencies (CBDCs), reflecting the Gulf state’s growing interest in advanced forms of money.

The Bank for International Settlements (BIS) announced on Wednesday that Saudi Arabia has joined Project mBridge as a “full participant.” This project aims to create a multi-central bank digital currency platform to facilitate cross-border payments, according to a press release.

The BIS, a financial institution owned by its member central banks, promotes cooperation among central banks and serves as a bank for them. The central banks of Saudi Arabia, the UAE, and Israel are among its 63 members.

Project mBridge began in 2021 through 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. The project also includes 26 observer members.

Digital currencies exist solely in electronic form and can only be accessed via computers, smartphones, tablets, and similar devices. A CBDC is a digital currency issued by a central bank, equivalent in value to the country’s fiat currency. Cryptocurrency is another type of digital currency.

According to Reuters, approximately 135 countries and currency unions are exploring CBDCs, though widespread use as an alternative to physical currency has not yet been achieved. The US Federal Reserve is among the institutions considering the launch of a CBDC.

Project mBridge aims to make cross-border payments faster, cheaper, and more accessible, especially in regions poorly connected to the global financial system.

“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 BIS stated.

Saudi Arabia’s involvement in the BIS CBDC project highlights the region’s increasing interest in digital currencies. In March, the Israeli cryptocurrency firm Bits of Bold announced plans to launch a digital coin backed by the shekel. The same month, the UAE Central Bank began exploring the feasibility of a digital dirham in collaboration with India.

Saudi Arabia has shown significant interest in cryptocurrency. Last September, blockchain analysis firm Chainalysis reported that the kingdom had the highest growth in cryptocurrency transaction volume over the previous year.

This growing regional interest in digital and cryptocurrencies coincides with efforts to reduce reliance on the US dollar. China is pushing to price oil transactions in yuan, an effort bolstered by a $6.93 billion currency swap agreement with Saudi Arabia in November. In March 2023, China settled a gas trade with the UAE in yuan for the first time.

Meanwhile, Russia and Iran, both facing extensive Western sanctions, are seeking alternatives to the US dollar in their bilateral trade.