On a significant development in the digital currency realm, Saudi Arabia has embarked on a groundbreaking venture by aligning with a predominantly China-led central bank digital currency (CBDC) endeavor that aims to transform the way oil trades are conducted, potentially diminishing the reliance on U.S. dollars.
The Bank for International Settlements (BIS) recently heralded Saudi Arabia’s central bank as a complete participant in Project mBridge. This project, which commenced in 2021, is a collaborative effort that includes the central banks of China, Hong Kong, Thailand, and the United Arab Emirates.
As an overseer of this initiative, the BIS revealed that Project mBridge has attained its ‘minimum viable product’ stage, signifying its progression from a mere prototype to a fully developed product.
It is noteworthy that approximately 135 countries and currency unions, accounting for 98% of the world’s GDP, are actively exploring CBDCs. Despite the innovative technologies employed, the transnational movement of these digital currencies presents both technical obstacles and geopolitical concerns.
‘The most advanced cross-border CBDC project just added a major G20 economy and the largest oil exporter in the world,’ articulated Josh Lipsky from the Atlantic Council, who is at the helm of a global CBDC tracker. ‘This suggests an imminent upscaling of commodity settlements on the platform using non-dollar currencies – a trend already in motion between China and Saudi Arabia, now bolstered by cutting-edge technology.’
Project mBridge employs the same underlying code as China’s e-yuan, which is also accessible to the project’s 26 ‘observing members’. These members include prominent institutions like the Federal Reserve’s New York branch, the International Monetary Fund, and the European Central Bank.
The BIS also disclosed that the mBridge platform has been made compatible with the Ethereum Virtual Machine, a core component of the Ether cryptocurrency’s network, positioning it as an experimental hub.
Proponents of CBDCs champion these digital currencies for their potential to rejuvenate payment systems with novel functionalities and serve as a modern substitute for the increasingly obsolete physical cash.
Nevertheless, the prospect of CBDCs as a significant improvement remains debated. Countries like Nigeria, which have adopted such currencies, see meager usage rates. Moreover, some nations encounter opposition from both political figures and the general public, who harbor concerns about potential government surveillance.
China is not only a dominant player in Project mBridge but is also conducting the most extensive domestic CBDC trials globally. These trials have reached 260 million individuals and span 200 different applications, ranging from e-commerce platforms to government stimulus transactions.
Other large developing nations, including India, Brazil, and Russia, are on the cusp of introducing their digital currencies within the next couple of years. Concurrently, the European Central Bank has embarked on a digital euro pilot, which could culminate in a launch by 2028.
In a contrasting stance, the U.S. House of Representatives has approved a bill prohibiting the Federal Reserve from creating a ‘digital dollar’, though it awaits Senate approval to be enacted as law.