Emirates on the path to their own CBDC

    The United Arab Emirates has included the development of a national digital currency (CBDC) as a point in the country’s Central Bank development strategy for 2023-2026. But the path there was not easy: initially, it was conceived of as a monetary unit for several Arab countries at once.

    In early July, it became known that the Central Bank of the United Arab Emirates was going to develop its national digital currency (CBDC). It is now included in the development strategy of the regulator for 2023-2026. The main goal of the new strategy, though, is for the Central Bank of the UAE to enter the top ten of the world’s central banks.

    There are no technical details of the project yet – most likely, they haven’t even been worked out by the Central Bank itself, as this is a matter for the years to come. However, it is clear that the creation of the CBDC fits into the plans of the UAE authorities to develop the country’s digital economy. Earlier, as part of these plans, Vice President and Prime Minister of the UAE, Ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, ordered to grant golden visas to 100,000 entrepreneurs and owners of businesses and start-ups, specializing in IT.

    Here it would be appropriate to bring up the predecessor of the current project. Over the past several years, the Central Bank of the UAE (CBUAE) has actually been collaborating with the financial authorities of Saudi Arabia (the Saudi Arabian Monetary Agency, SAMA, the body performing the functions of the kingdom’s central bank) to create a national digital currency based on blockchain technology. The initiative of the two countries got called Aber.

    The idea of creating an “Arab CBDC” first appeared about five years ago, but only began to materialize in November 2019, when Saudi Arabia and the United Arab Emirates officially confirmed plans to test a joint digital currency and discussed a further strategy for its launch. It was then that the Crown Prince of Saudi Arabia, Mohammed bin Salman, arrived in the UAE to address political and financial issues. Among them was a consideration of further steps to launch a digital currency, with a primary task is to simplify interbank transactions between the two countries.

    At that point, it was announced that the new state cryptocurrency would be called Aber and used for financial settlements. The name Aber is the Arabic word for “border crossing” and was chosen to reflect the cross-border nature of the project, as well as the hope that technology used for the new CBDC will also go beyond borders.

    The assumption then was that the currency would be tested by various banks in Saudi Arabia and the UAE, though neither these banks nor the exact date of the stablecoin launch was named. However, the announcement clearly indicated that the joint digital currency of Saudi Arabia and the UAE would be strictly bank-oriented (at least in the first phase), just to better understand the implications of using blockchain technology and how it may affect cross-border settlements. Other project goals included establishing uniform technological standards in the cryptosphere of the Arab countries, the assessment of cybersecurity risks, and the general impact of a single digital currency on monetary policy. And as a result, Aber was supposed to become the basis of a new reserve system for financial settlements within the countries.

    The Aber (ABR) cryptocurrency was originally intended to be a stablecoin based on the Saudi riyal (SAR) and the Emirati dirham (AED). SAR and AED are pegged to the US dollar (USD), while the ABR would have to be valued at a fixed rate for any of its bases (SAR or AED) and remain at a fixed level to convert to any of them.

    Initially, the states scheduled joint testing of Aber for January 2020, with the eventual launch around the end of the year. However, it soon became clear that the project did not inspire the same enthusiasm among its participants as before. Moreover, convenient and affordable means of settlement between countries have already been implemented on the blockchain. Back in 2018, SAMA made a deal with the Ripple cryptocurrency platform to use this technology for bank payments. And at the end of 2019, AlTaiseer Aluminum Corporation made a blockchain transaction with the Bahrain aluminum producer Aluminum Bahrain facilitated by the Saudi British Bank. Earlier in the year, the bank announced that it was using Ripple’s solution for international transactions.

    So the Aber project slowly turned into a limited settlement system between the two central banks. However, it left an instrumental legacy, particularly with its developments that “reconcile” such mutually conflicting requirements as security and scalability. The following approaches have been implemented in Aber: a commercial bank can only access its own balance and the details of the transactions it participates in. Central banks have access to the transactions and balances of banks in their jurisdiction, and to all international transactions, as well as a view of the entire money supply.

    Confidentiality is achieved through the use of completely anonymous channels, where transactions can be seen only by the members of the channel. The Aber system combined channels using segments of issuing and transferring ABR in dynamic parts to commercial banks. Three types of channels are used: a private channel between each commercial bank and its local central bank, a peer-to-peer channel between each pair of commercial banks with one or more central banks involved to ensure transparency, and a public channel in which each bank participates. The commercial bank – central bank channel is only used for ABR issuing and redemption (the opposite of issuing) requests. A public channel contains issue confirmations based on one-time bank identifiers used to prevent double-spending. Settlement specifics include a point of no return where a payment from Bank A to Bank B cannot be canceled.

    • Eleanore says:

      Hi there colleagues, its impressive piece of writing on the topic of tutoringand completely defined, keep it
      up all the time.

    Leave a Reply

    Your email address will not be published. Required fields are marked *