The
tower of the headquarters of the Bank for International Settlements
(BIS) is seen in Basel, Switzerland January 30, 2020. REUTERS/Arnd
Wiegmann Purchase Licensing Rights
Saudi Arabia joins BIS- and China-led central bank digital currency project
LONDON,
June 5 (Reuters) - Saudi Arabia has joined a China-dominated central
bank digital currency cross-border trial, in what could be another step
towards less of the world's oil trade being done in U.S. dollars.
The
move, announced by the Bank for International Settlements on Wednesday,
will see Saudi's central bank become a "full participant" of Project
mBridge, a collaboration launched in 2021 between the central banks of
China, Hong Kong, Thailand and the United Arab Emirates.
The
BIS, a global central bank umbrella organisation which oversees the
project, also announced that mBridge had reached "minimum viable
product" stage, meaning it will move beyond the pro type phase.
Roughly 135 countries
and currency unions, representing 98% of global GDP, are exploring
central bank digital currencies, or CBDCs. But the new technologies they
use makes cross-border movement both technically challenging and
politically sensitive.
"The
most advanced cross-border CBDC project just added a major G20 economy
and the largest oil exporter in the world," said Josh Lipsky, who runs a
global CBDC tracker
"This
means in the coming year you can expect to see a scaling up of
commodity settlement on the platform outside of dollars – something that
was already underway between China and Saudi Arabia but now has new
technology behind it."
The
mBridge transactions can use the code China's e-yuan is built on. That
code is also available to the project's 26 other "observing members"
that include the likes of the New York branch of the Federal Reserve,
the International Monetary Fund and European Central Bank.
The
BIS also said the mBridge platform was now compatible with the Ethereum
Virtual Machine - a piece of software that forms the backbone of the
network used by the Ether cryptocurrency.
"This allows it to be a testbed," it said.
Supporters
of CBDCs say they will modernise payments with new functionality and
provide an alternative to physical cash, which seems in terminal
decline.
But
questions remain why they represent an advance, with barely any uptake
in countries such as Nigeria that have already adopted them, and both
political and public pushback in some countries amid fears they could
enable government snooping.
As
well as dominating the mBridge project, China is carrying out the
world's largest domestic CBDC pilot which now reaches 260 million people
and covers 200 scenarios from e-commerce to government stimulus
payments.
Other
big emerging economies, including India, Brazil and Russia, also plan
to launch digital currencies in the next 1-2 years while the ECB has
begun work on a digital euro pilot ahead of a possible launch in 2028.
In
stark contrast, the U.S. House of Representatives passed a bill banning
the Federal Reserve from creating a "digital dollar", although it still
needs to pass a vote in the Senate to become law.
Reporting by Marc Jones Editing by Christina Fincher