It’s becoming unmistakably clear that as far as cryptocurrencies are concerned, some regional states are miles ahead of others when it comes to recognizing the advantages presented by blockchain.
It’s been nearly a year since Saudi Arabia and the United Arab Emirates became the first two Arab states to lay the cornerstone for the imminent official launch of cryptocurrency sponsored directly by their respective central banks.
Better known as Project Aber, which is Arabic for cross-border, this first-of-its-kind initiative is the fruit of the collaboration between the Saudi and Emirati central banks.
The project looks into the possibility of using digital currency issued by the two central banks to settle payments, whether locally or across borders, by relying on an infrastructure based on DLT.
“The project aims to explore whether distributed ledger technology (DLT) could enable cross-border payments between the two countries by relying on a dual-issued digital currency as a unit of settlement between commercial banks in the two countries and domestically,” the two central banks said in a joint statement.
The other purpose of using blockchain is to reduce costs and transfer time, which has been a major concern for all commercial banks in the region.
“Both the UAE and Saudi Arabia renewed the spotlight on a new trend sweeping the global financial sector, and at the same time contributed to the learning quotient on CBDCs. They are part of a growing list of 90 countries engaged in various stages of rolling out the CBDC, which is nothing but virtual money backed by a country’s central bank,” Anil Padmanabhan, a journalist based in New Delhi, wrote in an opinion piece in Dubai-based Khaleej Times newspaper on Jan. 14, 2022.
Arab nationals and cryptocurrencies
This was a bold and ambitious move by Saudi Arabia and the UAE, although the effort fell short of a full commitment to officially sanctioning the right to freely trade in digital currency.
In fact, to date, most if not all Arab central banks appear skittish at the notion of their central banks fully adopting and regulating the cryptocurrency market.
But while the concept of digital currency has yet to be more fully embraced by Arab bank regulators, based on recent data a significant number of Arab citizens are increasingly using cryptocurrencies, and it appears quite popular among the youth in particular. This also indicates that Arabs, much like other nationalities, fully grasp the importance of digital currencies.
A report by Triple-A, a firm that deals in cryptocurrencies, says Egypt, with over 1.8 million users, tops the rankings in the Arab world in terms of the biggest number of crypto owners, followed by Morocco and Saudi Arabia. The report notes that some 453,000 Saudi nationals own cryptocurrencies.
On the other hand, Pakistan with as many as 9 million users, leads the pack in terms of crypto owners among Muslim countries.
There are currently at least 90 countries worldwide that have adopted or regulated digital currencies, including the United States, Canada, Australia, Britain, Japan, and counties of the European Union, to name a few. It stands to reason that this number will continue to grow over time as awareness and understanding of the advantages of cryptocurrency increases.
The report notes that the vast majority of all cryptocurrency users globally are men, at 71 percent, while women make up just 29 percent of users.
In addition, some 58 percent of the digital currency users are people under 34 years of age.
Why are Arab states slow to adopt digital currency?
It may be true that many Arab countries are still cautiously assessing the pros and cons of using digital currencies, but there is no doubt that several Arab central bank governors are openly discussing this type of payment in investment conferences and interviews.
Saudi Central Bank Governor Fahad Al-Mubarak was one of many governors in the Arab world who addressed this issue during an investment conference. Al-Mubarak dismissed the notion that digital currencies would be the death knell for traditional banks in the region. “Traditional banking systems will not face destruction by digital currencies, but rather an expansion of centralized systems for regulating the tender will transpire,” he explained.
Cryptocurrencies’ regulatory considerations
Al-Mubarak said Saudi Arabia was now exploring the possibility of a low-cost digital central bank that stimulates digital operations, “which would have a hedge against real liquidity held in the central banks.”
However, regulatory authorities, in some Arab countries, have not yet made a pledge that their central banks would endorse this type of currency anytime soon.
Many Arab financial regulators are keen to first ensure that trading in digital currencies will not create havoc in the financial markets. Also, of concern is whether cryptocurrencies are compliant with Shariah Law.
The Central Bank of Egypt has stressed that dealing in the country is currently limited only to official currencies approved by CBE. CBE has been urging dealers in the Egyptian market to be very cautious and warning against engaging in high-risk informal currencies, in a clear reference to digital currencies.
But despite such concerns, some bankers argue that the adoption of digital currencies by the region’s central banks could promote competitiveness in transitional efficiency and support financial inclusion, particularly in emerging markets.
It is likely that the debate on digital currencies in the Arab states will persist for the foreseeable future, and regulating the use of these currencies will remain a major step for their central banks. In addition, the benefits of crypto will certainly be closely scrutinized to ensure that dealers in digital currency do not incur heavy losses if the medium becomes a common form of payment. Until then, trading in the currency will remain a speculative pursuit for those keen to embark on the digital journey ahead of the masses.