CBDC pilot project exceeds expectations
Most of the digital central bank currencies (CBDCs) that have seen the light of day are in the hands of a single central bank. Meanwhile, Saudi Arabia and the United Arab Emirates are exploring the feasibility of a bilateral solution.
The central banks of Saudi Arabia and the United Arab Emirates presented a detailed report on their joint CBDC project on Sunday. The results of the one-year test run demonstrate the benefits of Bitcoin Bank block chain and distributed ledger (DLT) technology in domestic and cross-border payments.
The two economic powers from the Middle East had already announced the launch of Project Aber in January 2019. In addition to the feasibility analysis, the participating central beacons also wanted to contribute to the knowledge base around CBDCs and DLT. The name of the project was a testimony to their own objectives:
The name Aber was chosen because, as an Arabic word for „crossing borders“, it reflects both the cross-border character of the project and our hope that it would also cross borders in terms of the use of technology.
Test was a complete success
Project Aber ran in three phases. With each new phase, private banks from both countries increasingly participated in the test runs. The banks operated their own nodes for the CBDC and also used their own money for payment processing. It was important to the makers of the study to put real money behind the digital currency so as not to lose sight of the security aspect.
Hyperledger Fabric was used as the technical foundation. Behind the Permissioned Blockchain solution are mainly IBM and the Linux Foundation. The authors of the report note that only a non-public block chain can meet the privacy and access restrictions required for inter-bank payments.
According to the report, the CBDC test was a complete success. According to the report, the use of distributed ledgers has exceeded expectations. All requirements regarding privacy, decentralisation and risk avoidance have been implemented. A joint CBDC of two states is not only a suitable solution for cross-border payments. It also offered „a significant improvement over centralised payment systems in terms of architectural resilience“.
The report concludes with a number of recommendations for further research and policy makers. Whether Saudi Arabia and the United Arab Emirates will actually introduce such a CBDC in the near future remained open in the meantime.
The world in CBDC fever
It is well known that Middle Eastern countries are not the only ones working on CBDCs. While China is setting the pace, more and more countries are being forced to follow suit. The European Union, for example, is considering the introduction of a cross-border digital currency for the entire eurozone. According to the ECB, a decision on the introduction of such an e-euro is to be taken in a few months‘ time. However, the German government has indicated that it could take years before it is actually implemented.