Saudi Arabia Joins China in Trial for Groundbreaking Digital Currency

62

Saudi Arabia’s recent participation in a China-led central bank digital currency (CBDC) cross-border trial marks a significant development that could potentially reduce the dominance of the U.S. dollar in global oil trade. The Bank for International Settlements (BIS) announced Saudi Arabia’s entry into Project mBridge, a collaborative initiative launched in 2021 involving the central banks of China, Hong Kong, Thailand, and the United Arab Emirates.

With Saudi Arabia’s central bank becoming a “full participant,” mBridge has progressed beyond the prototype phase, reaching the “minimum viable product” stage under the supervision of BIS. This milestone underscores the growing interest and engagement in CBDCs, with approximately 135 countries and currency unions, representing 98% of global GDP, exploring these digital currencies. However, the complex technological and political landscape surrounding cross-border CBDC transactions presents significant challenges.

Josh Lipsky, who oversees a global CBDC tracker at the U.S.-based Atlantic Council, highlighted the significance of Saudi Arabia’s inclusion, emphasizing the potential for increased commodity settlement outside of the U.S. dollar. The mBridge platform leverages the code underlying China’s digital yuan (e-yuan), offering compatibility with other observing members such as the New York branch of the Federal Reserve, the International Monetary Fund, and the European Central Bank.

In addition to its compatibility with the e-yuan code, the mBridge platform now integrates with the Ethereum Virtual Machine, serving as a testbed for innovative applications. Proponents of CBDCs argue that they offer enhanced payment functionalities and serve as a modern alternative to physical cash. However, concerns persist regarding their adoption, with limited uptake in some countries and resistance due to privacy and surveillance fears.

While China leads in CBDC development with the largest domestic pilot program, other major economies like India, Brazil, and Russia plan to launch their digital currencies in the near future. Meanwhile, the European Central Bank has initiated work on a digital euro pilot ahead of a potential launch in 2028. In contrast, the U.S. House of Representatives recently passed a bill prohibiting the Federal Reserve from creating a “digital dollar,” reflecting ongoing debate and uncertainty surrounding CBDCs in the United States.