Central Bank digital currency coming to Saudi Arabia

The announcement by the Saudi Central Bank, SAMA, about the launching of its test lab for digital currency is a move in the right direction for the digitized economy.

Saudi Arabia continues its journey toward Vision 2030 with the National Transformation Program. One of the key measures is a shift toward a digitized economy. While the focus is shifting globally to new and emerging blockchain technologies, which are integral to supporting and realizing digital economies around the world, Saudi Arabia and the Gulf region are not far behind.

As we are witnessing globally, the introduction and evolution of cryptocurrency and blockchain technologies have created further interest in cashless societies and digital currencies. Thus, governments and central banks worldwide are exploring the possibility of using government-backed digital currencies, which are known as CBDCs. If and when they are implemented, these currencies have the full faith and backing of the government that issued them. Central bank digital currencies are digital tokens, similar to cryptocurrency, issued by a central bank. They are pegged to the value of that country’s fiat currency.

To elaborate, fiat money is government-issued currency that is not backed by a physical commodity like gold or silver. It is considered a form of legal tender that can be used to exchange goods and services. Traditionally, fiat money came in the form of banknotes and coins, but technology has allowed governments and financial institutions to supplement physical fiat money with a credit-based model in which balances and transactions are recorded digitally.

Those who endorse CBDCs see their main goal as being to provide businesses and consumers with privacy, transferability, convenience, accessibility and financial security. CBDCs could also decrease the maintenance a complex financial system requires, reduce cross-border transaction costs, and provide those who currently use alternative money transfer methods with lower-cost options.

On the other side, those who have critical views of CBDCs, like Urs Schwinger, chief information officer of IPI, claim that cryptocurrency itself was invented with its main advantage being giving individuals back full control over their money without any bank interference. CBDCs are just an improved method of classical online banking, far away from the vision of a truly decentralized and digital currency.

Since its inception, SAMA has managed its affairs with wise and long-term decisions coupled with iron-fisted supervision. The decision to kick off a CBDC test lab was initiated under the leadership of former SAMA Gov. Fahad Al-Mubarak. Going forward, I am sure it will be put on the fast track, along with other digital currency initiatives, under the leadership of the newly appointed Gov. Ayman Al-Sayari.

Basil M.K. Al-Ghalayini is the chairman and CEO of BMG Financial Group.