Central Bank Digital Currencies (CBDCs) present “a significant improvement over centralised payment systems in terms of architectural resilience”, the report said.
The central banks from two of the most powerful economies in the Middle East – The United Arab Emirates and Saudi Arabia have released a joint report that speaks positively about blockchain technology. The report released earlier today was based on a year-long CBDC project called Project Aber.
Announced in 2019, Project Aber was an attempt by the UAE central bank and the Saudi Arabian Monetary Authority to establish a proof of concept designed to “contribute to the body of knowledge in CBDC and Distributed Ledger Technology (DLT)”. The interbank effort into a study on CBDC by the two major central banks is among the first of its kind.
The report explains that the choice of the name of the project was directly connected with the countries’ core mission for the project. “The name Aber was selected because, as the Arabic word, for “crossing boundaries”, it both captures the cross-border nature of the project as well as our hope that it would also cross boundaries in terms of the use of the technology”, the report said.
Project Aber was broken into three distinct phases that expanded the scope of the CBDC trial to six different commercial banks. The report explains that the project used a digital currency that was backed by fiat money in order to force “greater consideration” of security issues and consider the functioning of CBDCs with regards to existing payment systems.
The report concludes that a dual issued CBDC is not only technically viable for cross border payments but also explains that the CBDCs present “a significant improvement over centralised payment systems in terms of architectural resilience”.
“The key requirements were all met, including complex requirements around privacy and decentralisation, as well as requirements related to mitigating economic risks, such as central bank visibility of money supply and traceability of issued currency”, the report stated.
With regards to further recommendations, the report prescribes a number of steps for research and policy-making on CBDCs. It further suggests the adoption of distributed ledger technology to improve the security of existing systems and to offer DLT-based payment rails.
DLT is also looked at as a crucial part of further expanding the scope of future Project Aber trials to include more geographically dispersed partners as well as the settlement of other assets, such as bonds.
Written by Harshini Nag