Saudi Arabia’s Minister of Economy and Planning, Mohammed bin Mazyad Altwaijri, together with UAE’s Minister of Cabinet Affairs and The Future, Mohammad bin Abdullah Al Gergawi, announced the launch of seven strategic initiatives at the first meeting of the Executive Committee of the Saudi-Emirati Coordination Council held in Abu Dhabi.
One of the seven initiatives is the launch of a Saudi-Emirati Pilot cryptocurrency described by UAE’s official news agency, WAM, as follows:
“The first of its kind joint pilot cryptocurrency was launched during the meeting. The cross-border digital currency will be strictly targeted for banks at an experimental phase with the aim of better understanding the implications of Blockchain technology and facilitating cross-border payments.
The virtual currency relies on the use of a distributed database between the central banks and the participating banks from both sides.
It seeks to safeguard customer interests, set technology standards and assess cybersecurity risks. The project will also determine the impact of a central currency on monetary policies.”
There is little technical detail of how this is designed, but it appears the central bank of Saudi Arabia and that of UAE will both each run a node. Then all other commercial banks of the two countries will also run a node.
The public won’t be able to access this system, but the involvement of two banks makes it a bit interesting as it isn’t clear how they’ll co-oridinate in issuing new crypto.
The set-up appears to be centralized, with the crypto here probably a bit more like fiat as far as supply and so on is concerned.
It is probable there would be a “master-slave” relationship between the central banks and the commercial banks. That meaning the central banks probably run “controlling” nodes, while the commercial banks can just “see” through their node what the central banks are doing.
This could then perhaps easily be extended to the wider public who could connect through a light wallet which can establish the veracity of a crypto and can move it by itself, or accept it, but little else.
What technology is used exactly is not clear. The Saudis have been “shopping,” with collaborations of sorts announced with Ripple, IBM and ConsenSys. Meaning they have probably considered Ripple’s design, Hyperledger and Ethereum.
As a centralized crypto, this would probably give the banks the ability to freeze assets or to reverse transactions in a fairly efficient way as long as they know the identity of the address.
On the other hand, the system could allow easy transfer of assets across the globe if it is opened to the wider public who can then join through a light wallet.
The consideration there would be whether such light wallet itself should require AML/KYC or whether at that level this centralized crypto should be a bit like semi-cash.
Semi because you can’t freeze or reverse cash transactions in a highly efficient manner, yet cash because one doesn’t quite need to know at a bank level the identity of the holder for the system to operate.
At a bigger picture level, this announcement is made just months after Iran said they are to launch a centralized crypto.
Zooming out even further from the tree, Central Banks across the world in a semi-coordinated manner have been trying to see since 2014 how they can incorporate the efficiency gains of cryptos while maintaining their ability to increase or decrease the supply.
They’re effectively trying to compete with the new crypto money so that the differences between fiat and crypto become less about quick and cheap transactions – which appeals to all – and more about good monetary management – a topic somewhat specialized and complex.
The failure of some public blockchains to scale has given them sufficient time to catch-up to the stage where they can now pilot the centralized crypto within banks.
The speed of innovation in crypto, however, means they’re still probably far behind, but less than it may seem.
Yet where it comes to a competitive approach, it remains open whether top-down bankers can keep up with the bottom up innovation in open public blockchains.