On Wednesday, the governor of the UAE’s central bank announced that it was undertaking a joint project with the Saudi Arabian Monetary Authority (Sama) to use blockchain technology to issue a digital currency accepted in cross-border transactions between the two countries.
“It’s blockchain efficiency,” said Sally Sfeir-Tait, partner and global head of FinTech at law firm Clyde & Co, adding: “Central Banks globally are exploring how blockchain could support clearing and settlement’
This appears to be the first time two countries have agreed to work together on such a system, however, which Sfeir-Tait said was “unique, and an excellent initiative for distributed leger technology”
Despite initially being wary of blockchain because of concerns about fraud, banks are now exploring how they can exploit the technology to speed up back-office settlement systems and free billions in capital tied up supporting trades on global markets, the FT reports.
Sfeir-Tait said that using blockchain to replace existing systems would aid banks in reconciling and tracing transactions more efficiently and transparently, and help to “record transfers instantaneously, and in a completely auditable manner.”
“Think about the number of transactions [the two central banks are] going to be processing. Once you move on to the blockchain, trust, transparency and security are handled by the system itself. Therefore, existing systems become redundant’ she said.
Mubarak Rashed Al Mansouri, governor of the UAE’s central bank, made clear that the digital currency would not be for consumers to use, but instead between the two countries’ financial institutions.
“This would be much more efficient. This is between us and the banks,” he said.
Overall, the move by the banks to introduce new, innovative technologies will help reduce the risk of human error, improve efficiency, cost effectiveness and speed, according to Alberto Lobrano, chief technology officer at Reaktor, an engineering firm.
“Both Saudi Arabia and the UAE have made very public commitments to embracing innovation as part of their strategy for the future, so it’s right they are taking a proactive approach to exploring the use of cryptocurrencies,” Lobrano added.