Saudi Arabia’s central bank digital currency (CBDC) experiment, which is being carried out in conjunction with local banks and fintechs, is presently focused on domestic wholesale uses cases, the central bank has said. Meanwhile, the Saudi Minister of Finance has said CBDCs can be a “fantastic tool” which can be used by developing countries as a “social safety net.”
Local Banks and Fintechs Central to Saudi Arabia’s Digital Currency Project
The Saudi Central Bank (SAMA) has said its digital currency experiment is ongoing and is presently focused “on domestic wholesale CBDC [central bank digital currency] use cases in collaboration with local banks and fintechs.” Also, during this testing phase, SAMA will examine a CBDC-based payment system’s likely impact on the economy as well as the market’s readiness.
Outlining the central bank’s CBDC approach, Fahad Almubarak, the governor of SAMA, claimed that local banks and payment companies “will always be a cornerstone of this project and its implementation.” To support this claim, a statement issued by the central bank on Jan. 23 states that SAMA has already engaged local banks, fintechs, and technology providers as it seeks to better understand the functions of a CBDC as well as the different design options available.
Although SAMA has vowed to continue its research on CBDCs, it nonetheless emphasized in the statement that “no decision has been made regarding the introduction of CBDC in the Kingdom.” According to the statement, SAMA wants to make an informed decision thus it intends to continue “exploring the benefits and potential risks of implementing CBDC.”
CBDCs Require Compromise on Privacy
Despite the central bank’s seemingly cautious approach, the country’s Minister of Finance Mohammed Al-Jadaan recently lauded CBDCs which he sees as a useful tool for developing countries. As per his remarks during a World Economic Forum session, the Saudi minister also sees CBDCs being used to further social agendas.
“For me, I think CBDCs, at least for developing nations, would be a fantastic tool to provide for example social safety net,” Al-Jadaan said.
However, the Saudi minister did acknowledge that while CBDCs can achieve much, it will be at a cost — a compromise on privacy.
Meanwhile, in its statement, the Saudi central bank said the ongoing CBDC experiment will also examine the possibility of using the digital currency as “an infrastructure enabler of innovation in financial services that has the potential to contribute to a more resilient payment ecosystem.”
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Terence Zimwara
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