Cryptocurrency developments across the world have captured the attention of several major institutions, with some governments taking the extra steps to adopt virtual currencies. This rapid growth was personified recently when Saudi Arabia and the United Arab Emirates announced a joint central banked digital currency [CBDC] experiment between the two countries.
On Monday, the two countries revealed details about Project Aber which was kick-started in 2018. During the transfer, both parties used a single CBDC issued by the central banks instead of separate currencies that need to be converted.
One of the major reasons why the single CBDC transfer worked is that both the UAE Dirham and the Saudi Riyal are pegged to the United States dollar, creating a common backing. The main idea behind the experiment was to show the rest of the world that the decentralized economy was fast approaching. The experiment used synthetic transactions instead of real money, a transition that is set to be in the pipeline.
According to reports, the difference in monetary policies also features as part of the discussion between Saudi and the UAE. Sources added that future projects include an instant settlement for capital market transactions, use of multiple currencies as well as delivery versus payment. A major advantage of the currency single CBDC setup was that it removed the need for Nostro accounts to be maintained by a separate commercial bank.
The two central banks were not the only participants of the experiment as they were joined by six other commercial institutions. The banks of Riyad, Al Rajhi, and Al Inma in Saudi and Dubai Islamic, First Abu Dhabi, and ENBD in the UAE were the banks that also tested their virtual assets mettle. The aforementioned banks were also brought in to discuss future plans of issuing a CBDC for a specific transfer and then redeeming it at the end.
Security was also discussed during the experiment as it was one of the most important characteristics to bring customers in. All the participants unanimously agreed that transactions need to be resilient no matter what the situation with the transmitter and receiver. If all goes well and good, experiments in the future would include more participants and a much larger transaction ecosystem.