Such an experiment with the creation of a single digital currency between states would be the first in the world.
The Central Bank of Saudi Arabia and the UAE announced their decision to create a digital currency that can also be used between concerned banks through a single cross-border payment and settlement network.
Experts have shared their views on why Riyadh and Abu Dhabi decided to join forces in developing the digital economy, and what the economic benefits would be from the launch of a single digital currency.
In a joint statement, the two central banks said that the system will help provide structures with the necessary opportunities for the development of payment systems at the local and international levels.
Other states and international organisations would have an opportunity to join the project. The parties expressed the hope that a common digital currency will become the basis for the development of the international digital economy. For now, the digital currency will only be used by two central banks and those commercial banks that have already announced their willingness to receive cryptocurrency as a unit of account for transactions: be it local transfers or transactions between the two states.
Digital Currency and Prospects
Emirati expert on global currency markets Nizar al-Aridy sees this step as an excellent opportunity for both Saudi Arabia and the UAE to diversify their national economies over the next 10 years.
“The single digital currency between the UAE and Saudi Arabia is a qualitatively new step in the strategic relations between the two countries. It’s important to understand that strategically it is incredibly profitable, just because the sphere is extremely promising, and no one has yet created official digital currencies”, he said, adding that the digital currency will likely play a crucial role in the future for the development of artificial intelligence (AI) systems.
“That is, the digital economy will supply itself and bring profit. Moreover, the modernisation of the economy and the introduction of digital systems will attract a large flow of investments”, al-Aridy added.
According to him, the development of artificial intelligence systems and the digital economy that are inextricably intertwined not only contributes to the diversification of the national economies of the two Gulf monarchies, but will also give a serious impetus to their growth.
In turn, Emirati economist Najib Abdallah believes that the existence of a common digital currency will strengthen the strategic partnership between the two countries: it is much easier for two rich countries in the region to work and confront crises together than trying to do it alone.
“The economy of Saudi Arabia is the largest in the Arab world in terms of GDP. At the same time, the UAE economy is the second Arab economy based on the same indicator. The geographic proximity, highly developed trade and economic relations make the coordination of the two countries in the digital economy extremely successful”, he said.
Speaking about the expected benefits, the expert added: “Having a common digital currency will only play into the hands of the private sector. It is expected that this move will maximise the volume of trade exchanges between countries. And, I think, many neighbours in the region, like other countries, will want to join this system”.
Solutions on how to use, implement, and manage the digital currency within the framework of the Emirati-Saudi project have been worked out throughout this year. It is expected that the implementation of the project to create a single digital currency and currency transactions within its framework will be carried out in several stages and will take several years. A number of commercial banks will take part in the project, including Al-Rajhi Bank, Al-Inma Bank and Riyadh Bank, First Abu Dhabi Bank, Emirates NBD, and Dubai Islamic Bank, among others.