Ripple Rival in the Middle East? Saudi Arabia, UAE Pilot Aber Currency
February 5, 2019 by Akshay Makadiya
Two of the largest economies in the Middle East, Saudi Arabia and the United Arab Emirates, are piloting a shared central bank-issued digital currency (CBDC) dubbed Aber. The initiative is aimed at facilitating seamless and cost-effective transactions between the two nations. Does the new money campaign bode a threat to the business strategy of Ripple?
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Piloting a Shared Cryptocurrency, Central Bank Style
Last month, the Saudi Arabian Monetary Authority and United Arab Emirates Central Bank announced a partnership to test a new cryptocurrency for cross-border transactions.
As part of a growing economic alliance, the Executive Committee of the Saudi-Emirati Coordination Council is already experimenting with Aber to see if blockchain payments can be leveraged to settle financial transactions between the nations more securely and at lower costs.
For now, the pilot is focused on implementing the blockchain system, with only a few banks from both nations presently allowed to participate in the probational domestic tests.
Presuming the successful completion of the pilot, both country’s central banks will contemplate “economic and legal requirements” for further adoption of the technology.
Short on Details, Big on Implications?
The hands-on approach will allow both nations to examine the impact state-backed digital currencies can have on monetary policy. Apart from that, the development of blockchain-based financial settlement system could serve as a supplementary domestic system going forward.
The launch of the pilot cryptocurrency comes months after Saudi Arabia pronounced the use of cryptocurrencies as illegal.
Neither country has yet revealed a timeline for Aber’s pilot, nor have they offered specifics on the underlying blockchain system’s structure. It’s not clear if the digital currency will eventually be pegged to the Saudi riyal, the Emirati dirham, or physical assets like gold.
It wouldn’t come as a surprise if the countries choose to peg Aber to oil, as both Saudi Arabia and the UAE together account for around 24 percent of present global oil reserves.
Already, oil-rich nation Venezuela has set an example, albeit poorly executed, in moving to formalize the use of its oil-backed cryptocurrency — the Petro — into its banking system. Last year, the country’s banking regulator coerced public and private banks to use the controversial state-backed cryptocurrency in financial reports.
Nevertheless, if Aber ends up gaining traction reputationally, it could influence other central banks around the world to dig more deeply into blockchain.
CBDCs to Take On Ripple in Payments?
Yet if other nations trend toward piloting CBDCs that could possibly be integrated into their own banking systems, will such initiatives threaten the existence of XRP creators Ripple?
One of the primary reasons Ripple has grown in recent years is from a groundswell of belief from its proponents that the company may eventually become “the standard” underpinning international banking, superseding the current position of SWIFT.
As, if CBDCs do become a force to be reckoned with on the world stage, then Ripple may see some of its main value propositions eroded. Only time will tell.
Last year, Saudi Arabia’s central bank partnered with Ripple to test the company’s enterprise payment solution, xCurrent, which is touted to almost instantly settle international transactions. Also in the past, the UAE’s biggest lender — the National Bank of Abu Dhabi — signed a partnership to use Ripple for cross-border payments.
However, it seems Saudi Arabia and UAE are keeping their options open by developing Aber. Open enough, in fact, that Aber may eventually be extended to other trading partners in the Middle East.
Meanwhile, other countries in the region have also been experimenting with blockchain technology to improve cross-border payments. Recently, Qatar also successfully piloted a blockchain-based system for international remittances, concluding that the technology increased security and speed.
And then there’s Iran. In being battered by heavy sanctions from the United States, the second largest country in the Middle East is reportedly seeking to launch a CBDC backed by its national currency, the rial.
Though political tensions make Iran unlikely to adopt the Aber, the digital currency may be considerably more attractive over the long-term in the Middle East compared to the solutions provided by Ripple, an American company.
Is it better to develop a CBDC or use Ripple’s technology? Share your views in the comments section.
Images via Pixabay
