Saudi Arabia Steps Closer to Digital Riyal: Exploring CBDC and the Future of Finance

Is Saudi Arabia on the verge of launching its own digital currency? The buzz around Central Bank Digital Currencies (CBDCs) is growing globally, and the Kingdom is no exception. While the Saudi Central Bank (SAMA) isn’t rushing into deployment, they’re definitely ramping up their research into what a digital Riyal could mean for the nation’s economy. Let’s dive into what’s happening and what it could mean for the future of finance in Saudi Arabia.

Saudi CBDC: Still in the ‘Exploration’ Phase

Despite increasing global interest in digital currencies, SAMA is taking a measured approach. They’ve clearly stated that no decision has been made to actually launch a CBDC. However, don’t mistake caution for inaction. SAMA is actively exploring the potential of a digital Riyal and how it could reshape the financial landscape.

Think of it like this: SAMA is diligently conducting its homework. They’re not just jumping on the CBDC bandwagon, but rather carefully analyzing the pros and cons before committing. This cautious approach is actually quite sensible, given the significant implications of introducing a national digital currency.

What is SAMA Investigating? Unpacking the Research

So, what exactly is SAMA focusing on in this ‘exploration’ phase? According to their recent bulletin, the current project phase is centered around:

• Domestic Wholesale CBDC Use Cases: This means they’re looking at how a digital Riyal could be used between banks and large financial institutions within Saudi Arabia. Think of it as streamlining large-value transactions and interbank settlements.
• Collaboration with Local Banks and Fintechs: SAMA isn’t working in isolation. They’re partnering with local banks and innovative fintech companies to get real-world insights and ensure any potential CBDC aligns with the needs of the Saudi financial ecosystem.

Beyond these immediate focus areas, SAMA is also digging deep into the broader implications of a CBDC. They are rigorously examining:

• Economic Impact: How would a digital Riyal affect the Saudi economy? Would it boost efficiency, reduce costs, or create new opportunities?
• Market Preparedness: Is the Saudi market ready for a CBDC? Do businesses and consumers have the necessary infrastructure and understanding?
• Use Cases: Beyond wholesale payments, what other practical applications could a digital Riyal unlock?
• Policy, Legal, and Regulatory Issues: Introducing a CBDC is a complex undertaking that requires a robust legal and regulatory framework. SAMA is ensuring they have all bases covered.

Saudi Vision 2030: CBDC as a Catalyst for Transformation?

This CBDC exploration isn’t happening in a vacuum. It’s intrinsically linked to Saudi Vision 2030, the Kingdom’s ambitious plan to diversify its economy and modernize various sectors. A digital Riyal could be a key enabler in achieving these goals by:

• Enhancing Financial Inclusion: Digital currencies can potentially bring more people into the formal financial system, especially in remote areas.
• Boosting Efficiency and Innovation: CBDCs can streamline payment systems, reduce transaction costs, and foster innovation in financial services.
• Modernizing Infrastructure: Embracing digital finance aligns with the broader vision of building a cutting-edge and diversified economy.

According to SAMA governor H.E. Fahad Almubarak, local financial institutions are set to play a crucial role in this journey. Their involvement is vital to ensure the successful development and implementation of any future CBDC.

Project Aber: A Glimpse into Saudi Arabia’s CBDC Expertise

Saudi Arabia isn’t new to the CBDC scene. Back in 2019, SAMA, in collaboration with the Central Bank of the UAE, successfully completed “Project Aber.” This was a fascinating experiment that explored the use of blockchain technology for cross-border payments using a dual-issued CBDC.

The findings from Project Aber were significant. The banks concluded that a dual-issued CBDC was not only technically feasible for cross-border transactions but also offered notable improvements in terms of:

• Architectural Robustness: Blockchain-based systems can be more resilient and less prone to single points of failure compared to traditional centralized systems.
• Efficiency: CBDCs have the potential to speed up cross-border payments and reduce associated costs.

While the specific technology behind the current Saudi CBDC research isn’t officially revealed, industry observers like CBDC Tracker speculate that it might be based on Hyperledger Fabric, a popular open-source blockchain platform.

CBDCs Globally: A Growing Trend

Saudi Arabia is part of a global movement. The Atlantic Council reports that as of now:

• 11 countries have fully launched a CBDC. The majority are in the Caribbean region, with Nigeria being a notable exception.
• 17 countries are currently piloting CBDCs. This number is steadily increasing as more nations explore the potential of digital currencies.

This global context highlights that SAMA’s research is timely and aligns with international trends in the financial sector. Countries are recognizing the potential benefits of CBDCs in modernizing payment systems and enhancing financial infrastructure.

What’s Next for the Digital Riyal?

While a digital Riyal isn’t a reality just yet, Saudi Arabia is clearly taking concrete steps to understand its potential. The ongoing research, coupled with the experience from Project Aber, positions the Kingdom well to make informed decisions about its future in the digital currency space.

Key Takeaways:

• Research, Not Rollout: SAMA is actively researching CBDCs, but no launch decision has been made.
• Focus on Wholesale: Current research emphasizes domestic wholesale use cases, involving banks and fintechs.
• Vision 2030 Alignment: CBDC exploration is part of Saudi Arabia’s broader economic diversification and modernization strategy.
• Experience Matters: Project Aber demonstrated Saudi Arabia’s capability in CBDC experimentation.
• Global Trend: The Kingdom is part of a growing global movement towards exploring and implementing CBDCs.

The journey towards a potential digital Riyal is ongoing. As SAMA continues its research and analysis, the world will be watching to see if and when Saudi Arabia takes the next step towards embracing a central bank digital currency. Stay tuned for further updates!