The UAE Central Bank in Abu Dhabi. The UAE Central Bank previously did not endorse digital currencies such as Bitcoin because of its speculative nature and risks involved. Image Credit: Ahmed Kutty/Gulf News Archives

Abu Dhabi: Central Bank of the UAE is undertaking a joint project with Saudi Arabian Monetary Authority (Sama) to use block-chain technology in order to issue a digital currency accepted in cross-border transactions between the two countries, its governor said in Abu Dhabi on Wednesday.

“This is probably the first time ever that witnesses the cooperation of monetary authorities from different countries on this topic and we hope that this achievement will foster similar collaboration in our region,” said Mubarak Rashed Al Mansouri speaking at the high-level meeting for the Arab region on global banking standards and regulatory and supervisory priorities.

Elaborating further, he said they are studying the concept of developing a digital currency between the UAE and Saudi Arabia

“It’s just a study between UAE and Saudi [Arabia] and have not gone deeper into it. We have not put a framework when the study will be completed and who will be involved from both parties.”

He clarified that the digital currency will not be about consumers but only between the banks.

“This would be more efficient and much more efficient. This is between us and the banks.”

The UAE Central Bank previously did not endorse digital currencies such as bitcoin because of its speculative nature and risks involved. Saudi Arabia also warned against trading bitcoin because it was outside the bank’s regulatory reach.

In a separate statement, Central Bank of UAE said: “CBUAE and Sama intend to execute a joint crypto-currency and Distributed Ledger Proof-of-Concept (PoC). The PoC’s design mainly focuses on the transfer of ownership of a central bank asset (crypto-currency) among participants.”

Challenges and opportunities

The participants include two central authorities as well as a number of commercial banks (in each country) that perform transactions using the crypto-currency, it said.

Al Mansouri also said the recent developments in fintech present both unique challenges and opportunities for the industry and the key is for both market participants and regulators to better understand the risks involved and the best ways to monitor and mitigate them.

“Crowd funding platforms and block chain technologies are a case in point. Crowd-funding platforms, for example have gained widespread attention and growth over the previous few years. At the central bank of the UAE, we started developing regulations in this regard in 2016 in order to safeguard the financial system and protect consumers, this project is at a final stage.”