Central banks of Saudi Arabia and the United Arab Emirates (UAE) have just completed a pilot project on central bank digital currency (CBDC), discovering that distributed ledger technology (DLT) can improve cross-border transactions and meet privacy needs financial in a purely digital context.
The final report on the experiment has been drawn up
In a 93-page report on the “Aber” project, the two central banks outlined the lessons learned from a year-long proof-of-concept designed to test the viability of a shared digital currency between nations. They found that a distributed payment system offers “significant improvements over centralized payment systems” for domestic and cross-border commercial banking regulations.
"The name Aber was chosen because its Arabic meaning of 'crossing borders' captures both the cross-border nature of the project and our hope that it will also cross borders in terms of technology use," the report reads. .
The project was announced in 2019 as part of Saudi Arabia and the United Arab Emirates' “Azzam” strategy, an agreement to promote bilateral cooperation. Although central banks say more research is needed, the Aber pilot project contributes to the “body of knowledge on CBDC and DLT technologies”.
Notably, the report builds on previous CBDC trials in Canada, Japan and Singapore, which were typically limited to the single currency, rather than double CBDC issuance. In addition to the two central banks, six local commercial banks operated nodes and contributed "real money" from reserves deposited with central banks.
A key experiment for the sector
The pilot project was built on Hyperledger Fabric, an open source and licensed distributed ledger linked to the Linux Foundation and IBM. However, JPMorgan's Quorum, a private version of Ethereum (here the quotation in real time) and the R3 Corda DTL system.
"Note that public blockchain protocols like Ripple and Stellar, which are often used for cross-border remittance use cases, have been excluded due to the obvious need for permissions and privacy for the interbank payment use case (which these protocols did not support), ”the report reads.
Although the Aber project achieved “high levels of performance without compromising security or privacy,” the researchers note that there were teething problems in coordinating nodes between jurisdictions. Additional questions were raised in the report about the purpose of regulation and the performance of the blockchain, potential legal or political issues, and operational risks.
Aber researchers note that further experimentation could see the introduction of other fiat-backed currencies, geographic expansion, and the deployment of financial instruments such as bonds. Perhaps the biggest question left unanswered? How distributed systems will affect monetary policy.
