Saudi Arabia Hops on CBDC Wave

Saudi Arabia central bank joined a Chinese-dominated central bank digital currency (CBDCs) cross-border-trial, taking the Kingdom one step closers towards decreased reliance of the world’s oil trade being done in US dollars.

The Bank for International Settlements (BIS) announced on Wednesday that Saudi Arabia’s central bank will become a “full participant” in Project mBridge. This initiative, launched in 2021, is a collaboration between the central banks of China, Hong Kong, Thailand, and the United Arab Emirates.

The BIS, an organization that supports global central banks, also shared that mBridge has reached the “minimum viable product” stage. This means the project is moving past the prototype phase.

Around 135 countries and currency unions, which make up 98% of the world’s GDP, are exploring central bank digital currencies. Although, new technologies involved in CBDCs make cross-border transactions both technically challenging and politically sensitive.

“The most advanced cross-border CBDC project just added a major G20 economy and the largest oil exporter in the world,” said Josh Lipsky, who runs a global CBDC tracker at the US-based Atlantic Council.

“This means in the coming year you can expect to see a scaling up of commodity settlement on the platform outside of dollars — something that was already underway between China and Saudi Arabia but now has new technology behind it.”

The mBridge transactions can use the same code as China’s e-yuan. This code is also accessible to the project’s 26 other “observing members,” including the New York Federal Reserve, the International Monetary Fund, and the European Central Bank.

The BIS also stated that the mBridge platform is now compatible with the Ethereum Virtual Machine, the software that supports the Ether cryptocurrency network.

The Case with CBDC

CBDC are controversial for several reasons which are privacy concerns, security risks, and of course challenges that tag along. This is why on the 23rd of May, the U.S House of Representatives passed a bill which banned the Federal Reserve from creating a ‘digital dollar’.

Supporters of CBDC’s firmly state that they will update payment systems with new features and offer an alternative to physical cash, which has been declining.

Questions persist about their benefits, as shown by the low adoption rates in countries like Nigeria that already have introduced them. To top that off, political and public resistance in some regions stems from concerns over potential government surveillance.

China is leading the mBridge project and running the world’s largest domestic CBDC trial, now reaching 260 million people and covering 200 scenarios, from e-commerce to government stimulus payments.

Other major emerging economies, such as India, Brazil, and Russia, are planning to launch digital currencies in the next one to two years. Meanwhile, the European Central Bank is working on a digital euro pilot, aiming for an estimated launch in 2028.

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