Saudi Central Bank (SAMA) and the UAE Central Bank (CBUAE) launched a joint digital currency project in January 2019. It was called Project Aber, which translates to one who crosses borders’ highlighting the cross-border scope of work.
The objective of Project Aber
- To discover, experiment, and develop a deeper understanding of distributed ledger technology (DLT) and examine its maturity.
- To explore an alternative DLT-based cross-border payment solution that can resolve inefficiencies in current cross-border interbank payment approaches
- Knowing and playing with the concurrent issuing of the digital currency of the central bank
- Benchmark results against the results of other central banks
Project Aber was structured into three different phases or three use cases
Use Case 1
Using case one to discuss cross-border settlements between the two central banks. It included the development of a mutual ledger between the two central banks in which different digital currency transactions could take place.
Use Case 2
Use the case to examine domestic settlement amongst three commercial banks in each nation.
Use Case 3
Use Case 3 to examine cross-border transfers between commercial banks using digital currency. In certain cases, a settlement between central banks is also needed. This has been achieved by using a common ledger of central banks.
The two central banks have initiated the “Aber” project as an ambitious effort, which is considered to be one of the first of its kind worldwide at the level of central banks. The definitive report on the effects of the project is available on the official SAMA and CBUAE websites. I am also bringing together a final report to review the results in depth.
Project Aber is used in financial settlements between the Kingdom of Saudi Arabia and the UAE through the infrastructure of Blockchains and Distributed Ledgers. This is in the form of the ‘Proof-of-concept,’ which can be summed up in an in-depth interpretation and analysis of the dimensions and viability of new technology by realistic implementation and the evaluation of their effect on the improvement and elimination of the costs of remittances and the estimation of technological risks and how to deal with them. This is in addition to the qualification of the systems to deal with the technology of the future and to consider the conditions of the issuance of a digital currency for use by all countries. Also, it will provide additional means for the central financial transfer structures of the two countries and allow banks to communicate directly with each other in the conduct of financial remittances.
SAMA and the Central Bank of UAE have the same willingness to initiate pilot projects through the use of these innovations to recognize them and learn how to benefit from them. However, there are still some areas of foreign remittances that require further growth. It can be seen, after a review, that the use of digital currency can lead to this growth. The project would also cause attention to be given to the prospect of using the system as an alternative contingency system for the domestic central payment settlement system in the event of interruption for some reason. The use of the currency would be reserved for a limited number of banks in each jurisdiction. If no technological hurdles are found, attention will be extended to economic and legal conditions for future uses.
There are several ways in which this project will evolve in future work. It could provide the basis for a backup of national and regional RTGS; provide a more distributed and potentially resilient alternative to centralized systems that are being introduced or are being implemented today. By providing DLT-based payment rails, it is possible to extend the reach of Distribution versus Payment situations, such as using the Aber network as a medium of settlement for other types of transactions, such as the selling of bonds or other dematerialized cash. It can be expanded globally to include regional or other foreign central banks or to connect heterogeneous networks.
In summary, according to a study shared by central banks, Aber has been active in achieving its core objectives, which include the use of a new DLT-based solution for cross-border interbank payments between commercial banks without the need to manage and reconcile Nostro accounts with each other. The initiative has been successful in achieving its goals and has shown the future incremental advantages of this innovative approach to payments. As such, we conclude that this initiative has had a material effect on the industry’s perception of the sector and is an important addition to the body of expertise on how DLT’s emerging technologies can be extended to cross-border and domestic payments.
Source: Project Aber Report
