Digital assets have transformed from relatively unknown to the most discussed topic in financial circles. With countries worldwide implementing the idea, the industry has recorded massive growth in recent years.
In a recent development, the Saudi Central Bank (SAMA) has expressed its willingness to experiment with a central bank digital currency (CBDC). This project will partner with local banks and the fintech industry. The Saudi Central Bank has stated that it will be a gradual process that will roll out in phases.
CBDCs are digital tokens controlled by a central authority. Also, their value is pegged to the country's currency where they operate.
Saudi Central Bank Joins The CBDC Train
The Saudi Central Bank is open to joining the CBDC adoption train. However, the body is weighing its options and the potential impact on the economy and acceptance by the general population.
SAMA, in a report, stated that they were exploring the benefits of this innovation and all potential risks. Therefore, no concrete decision has been made as more research is still ongoing.
SAMA successfully conducted a CBDC experiment Project Aber in 2019. The project was a collaborative effort with the Central Bank of the UAE to test the effectiveness of CBDCs in cross-border payments.
The CBDC experiment aligns with Saudi's vision 2030 goals. These goals envision a technologically advanced future for the people of Saudi. Fahad Almubarak, SAMA's Governor, stated that local banks and fintech companies are the bedrock of this digital currency development and implementation.
Saudi Arabia And Crypto Adoption
Statista reports that crypto revenues in Saudi Arabia will reach $237.1 million in 2023. These statistics reflect a healthy adoption of cryptocurrencies in the region. Research by KuCoin last year revealed that approximately 3 million Saudis had become crypto investors in 6 months.
Saudi Arabia's demographics are unique, with around 70% of the population below 30 years. So, regulators have taken a more measured approach to the crypto revolution in Saudi as the youthful population drives the crypto run.
In a recent report, Saudi Arabia has considered adopting other global currencies like bitcoin to trade oil to reduce U.S. dollar supremacy. Saudi Arabia, since 1970 has fixed its oil prices based on the U.S. dollar in a system referred to as the "petrodollar'.
Mohammed Al-Jadaan, Saudi's Minister of Finance, stated that Saudi is ready to review this process to strengthen ties with China, the world's largest oil importer. China is behind this move to discard the petrodollar system, granting its trade partners access to Natural Gas Exchange and Shangai Petroleum operating with the Chinese Yuan.
China and its trade partners are looking to disrupt this system and reduce the United States' dominance in the global oil trade. This move will create a chance for Bitcoin and other cryptocurrencies to control the market.
According to Arthur Hayes, founder of BitMEX, this news will create market uncertainty in the oil trade. He believes that a reserve asset such as gold will be used to aid the global trade in energy and commodities.
He stated that central banks and state authorities appreciate the value of gold but not the relatively new Bitcoin. Butt with time, bitcoin will eventually replicate the success recorded by gold.
Saudi Planting The Seeds For A Crypto Revolution
Saudi Arabia had previously taken steps to ensure a successful CBDC launch with the appointment of Mohsen Al Zahrani as the head of SAMA’s CBDC drive. The digital revolution has also spiked the interest of neighbors Dubai, widely regarded as the business capital of the gulf. Dubai revealed its plans in July 2022 to be listed among the top 10 cities in the Metaverse economy.
They also intend to create 40,000 virtual jobs adding approximately $4 billion to the economy within 5 years. The creation of the Aber digital cryptocurrency in 2019 will serve international transactions between the two countries.
Saudi Not Alone In The Crypto Revolution
As the crypto revolution transforms the Middle East, other notable countries and financial institutions have already adopted the trend. United States bank J.P. Morgan Chase launched its own CBDC in 2019. The digital asset is called the JPM Coin. The asset processes payments between clients with ease.
Other notable financial institutions worldwide are beginning to roll out plans to launch these digital currencies. El Salvador famously launched Bitcoin as its legal tender and is considered a pioneer in crypto adoption.
However, some financial experts have called for a careful and regulated approach to cryptocurrency adoption. This stance is due to crypto's notorious volatility, which was evident in most of 2022. Another challenge is its decentralized nature and anonymity.
Cryptocurrencies take pride in their ability to handle numerous transactions and retain user privacy on the blockchain. However, some criminals use this feature to facilitate money laundering. So, the CBDC project will look to launch a more centralized and regulated project to reduce the chances of disastrous events.
Whatever the outcome of these crypto regulations will be, the fact remains that crypto adoption is on the rise. Saudi Arabia will continue experimenting to discover the best approach to its CBDC agenda.