Saudi Arabia has recently joined a cross-border trial of a central bank digital currency led by China. This move could potentially reduce the reliance on the US dollar for global oil trade.
The Bank for International Settlements (BIS) announced Saudi Arabia's participation in Project mBridge, a collaboration initiated in 2021 by the central banks of China, Hong Kong, Thailand, and the United Arab Emirates.
The BIS, which oversees the project, also revealed that mBridge has progressed to the "minimum viable product" stage, indicating its advancement beyond the prototype phase.
With approximately 135 countries and currency unions, representing 98 percent of global GDP, exploring central bank digital currencies (CBDCs), the adoption of these new technologies poses technical and political challenges for cross-border transactions.
Josh Lipsky, who manages a global CBDC tracker at the US-based Atlantic Council, highlighted the significance of Saudi Arabia's participation, stating that it adds a major G20 economy and the world's largest oil exporter to the most advanced cross-border CBDC project.
In the upcoming year, there will be an expansion of commodity settlement on the platform, moving away from the use of dollars. This shift was already in progress between China and Saudi Arabia, but now it is supported by new technology. The mBridge transactions can utilize the same code that China's e-yuan is built on. This code is also accessible to the project's 26 other "observing members," which include prestigious institutions such as the New York branch of the Federal Reserve, the International Monetary Fund, and the European Central Bank.
Additionally, the BIS has announced that the mBridge platform is now compatible with the Ethereum Virtual Machine. This software is a crucial component of the network used by the Ether cryptocurrency. The BIS states that this compatibility allows the platform to serve as a testbed for further advancements and developments.
Supporters argue that CBDCs will revolutionize payment systems by introducing new features and offering an alternative to physical currency, which is on the decline. However, there are concerns about the actual benefits of CBDCs, as seen in the low adoption rates in countries like Nigeria and resistance from both the public and politicians in some nations due to privacy issues.
China is leading the way in CBDC development with the mBridge project, conducting the largest domestic pilot program involving 260 million people and 200 different scenarios. Meanwhile, other major economies such as India, Brazil, and Russia are also gearing up to launch their own digital currencies within the next couple of years. The European Central Bank has initiated a digital euro pilot program, aiming for a potential launch in 2028.
In contrast, the US House of Representatives recently passed a bill prohibiting the Federal Reserve from issuing a digital dollar. However, the bill still needs to be approved by the Senate to become law.
