United Arab Emirates

Project 1: Cross border CBDC / Wholesale CBDC — Project Aber

In 2019, the Saudi Central Bank (SAMA) and the Central Bank of the United Arab Emirates (CBUAE) collaborated on a joint endeavor known as Project Aber. This project aimed to assess the capabilities of Digital Currency and Distributed Ledger technology, with a specific focus on transforming cross-border payments between the two countries. As part of this initiative, a unique digital currency was introduced by both nations, designed for settlement purposes among commercial banks within their respective jurisdictions as well as across borders.

The outcome of the project indicated that Distributed Ledger Technology (DLT) offers central banks the potential to reimagine both domestic and cross-border payment systems in innovative ways. All the essential requirements were successfully met, including intricate aspects related to privacy, decentralization, and addressing economic risks. Notably, this encompassed ensuring central bank oversight of money supply and traceability of issued currency to mitigate economic concerns. The project surpassed its initial performance objectives, demonstrating that DLT technologies can deliver high performance without compromising safety or privacy. Consequently, the project not only validated the feasibility of DLT as a mechanism for domestic and cross-border settlement but also affirmed the technical viability of a unified digital currency jointly issued by both central banks.

Moving into January 2023, SAMA revealed its ongoing commitment to exploring Central Bank Digital Currency (CBDC). It is currently engaged in a project phase that focuses on implementing CBDC for domestic wholesale use cases, working collaboratively with local banks and fintech companies. SAMA’s objective is to assess the economic impact, market readiness, and potential swift and robust applications of a CBDC-based payment solution. Furthermore, SAMA aims to thoroughly review policy, legal, and regulatory considerations before progressing to subsequent phases of the CBDC journey, aligning with the goals of Saudi Vision 2030.

SAMA emphasized that while no definitive decision has been reached regarding the introduction of CBDC in Saudi Arabia, the institution remains dedicated to exploring the benefits and potential risks associated with CBDC implementation. This comprehensive exploration will enable informed decision-making within SAMA and contribute to broader CBDC investigations within the central banking community.

Use-Cases:

The three use cases investigated were as follows:

Use Case 1: Payment between central banks

This involved creating a shared ledger between the two central banks on which various digital currency transactions could take place.

Use Case 2: Domestic Payments between Commercial banks

This focused on domestic payments between commercial banks in each of the countries.

Use Case 3: Cross-border Payments between Commercial banks

This addressed cross-border transactions between commercial banks of the 2 countries.

Source:

https://www.sama.gov.sa/en-US/News/Documents/Project_Aber_report-EN.pdf

https://www.sama.gov.sa/

Project 2: Cross Border CBDC – Project mBridge

Focus Area:

To assess the capabilities of a widely accessible, cost-effective, and efficient multi-CBDC platform in establishing direct connections between central banks and commercial participants, thereby significantly enhancing the possibilities for international trade and facilitating cross-border business on a larger scale.

Overview:

mBridge is a joint project between the BIS Innovation Hub Hong Kong Centre (HKC), and four participating central banks in Asia and the Middle East — the Hong Kong Monetary Authority (HKMA), the Bank of Thailand (BOT), the Central Bank of the United Arab Emirates (CBUAE) and the Digital Currency Institute of the People’s Bank of China (PBCDCI).

Project mBridge conducted experiments on cross-border payments using a shared platform built on distributed ledger technology (DLT), enabling multiple central banks to issue and exchange their respective central bank digital currencies (multi-CBDCs).

Currently, cross-border payments rely on a global network of correspondent banks that involve numerous intermediaries scattered across different time zones and operating hours. This fragmented system leads to high costs, slow transaction speeds, operational complexities, limited accessibility, and a lack of transparency. Moreover, these inefficiencies introduce settlement risk, negatively impacting both financial intermediaries and end users.

Out of the 15 identified use-cases, international trade settlement was selected as the initial business scenario to be piloted on mBridge. This decision was driven by the significant trade value within the four participating jurisdictions and the crucial role of trade in the region.

The pilot tested the following three transaction types:

Issuance and redemption of CBDC between central banks and their domestic commercial banks.
Cross-border payment between commercial banks in local CBDC (for example, a UAE corporate paying a mainland Chinese corporate in e-CNY through their commercial banks participating on the platform).
Cross-border PvP FX between commercial banks in local CBDC (for example, a Thai bank exchanging e-THB for e-HKD with a Hong Kong SAR bank on the platform).

Financial institutions involved:

BIS Innovation Hub Hong Kong Centre (HKC)
Hong Kong Monetary Authority (HKMA)
Bank of Thailand (BOT)
Central Bank of the United Arab Emirates (CBUAE)
Digital Currency Institute of the People’s Bank of China (PBCDCI)
Bank of China
HSBC
Standard Chartered
First Abu Dhabi Bank
Bank of Communications
Agricultural Bank of China
China Construction Bank
Industrial and commercial Bank of China (ICBC)
Bangkok Bank
Kasikorn Bank
SCB
Krungsri

Design considerations:

In order to streamline the technical functionality of the pilot, the mBridge ledger was deployed and managed in a highly secure, centralized cloud infrastructure located in Hong Kong SAR. This setup allowed participants to conveniently access the platform as a software-as-a-service (SaaS) solution through a user-friendly web-based interface (UI).

Within the platform, commercial banks have the capability to engage in direct peer-to-peer transactions with any other commercial bank, eliminating the need for intermediaries.

Technical Solution:

Following extensive experimentation with various technology architectures during earlier stages, the project team successfully created a dedicated blockchain specifically designed for mBridge, known as the mBridge ledger (mBL). This native blockchain was developed to cater to the requirements of both central banks and commercial participants.

To enhance the accessibility, flexibility, and scalability of the mBL platform for existing and future users, a modular design approach was adopted. This design allows users and developers to leverage a service-oriented architecture that is familiar and easy to work with, enabling seamless integration and adaptability within the platform.

Conclusion:

As of 2022, this project marked the largest cross-border CBDC initiative, involving the issuance of over US$ 12 million worth of CBDCs onto the platform. Additionally, it facilitated over US$ 22 million worth of payments and instant FX PvP settlements across borders, while boasting the highest number of direct pilot participants.

Project mBridge effectively validated the hypothesis that an efficient, cost-effective, real-time, and scalable cross-border multi-CBDC arrangement could establish direct connectivity between central banks and commercial participants. This achievement significantly enhanced the potential for international trade flows and cross-border business on a larger scale.

The platform’s modular framework allowed for seamless integration with domestic payment systems, accommodating both manual and automatic processes. Leveraging the insights gained from the pilot and earlier project phases, Project mBridge will continue its efforts. This entails further technology development, testing, and improvement of existing functionalities, as well as the addition of new features to transition from the current pilot phase to an MVP (Minimum Viable Product) and eventually a fully operational system.

In 2023 and 2024, the roadmap for mBridge will focus on the following:

Achieving automated interoperability with domestic payment systems;
Integrating FX price discovery and matching into the platform;
Introducing liquidity management tools such as transaction queueing and priority management;
Evaluating the role of central bank participants in providing liquidity;
Improving data privacy-preserving tools;
Continuing to develop the legal framework, and platform terms and conditions;
Taking further inventories of policy, regulatory and compliance considerations;
Evaluating decentralised deployment through a lens of data-privacy and legal considerations, and in tandem determining the remit and structure of a centralised governance role;
Testing and piloting more business use cases and transaction types;
Including additional jurisdictions and participants; and
Exploring more services that the private sector can add to the platform

Source:

https://www.bis.org/publ/othp59.pdf

Project 3: WholeSale / Retail CBDC – Digital Dirham

The initial stage of CBUAE’s CBDC Strategy, projected to conclude approximately by mid-2024, involves the execution of proof-of-concept tasks. These tasks encompass the establishment of bilateral CBDC bridges with India, a key trading ally of the UAE. Additionally, this phase encompasses proof-of-concept activities related to the domestic issuance of CBDC, encompassing both wholesale and retail applications.