Saudi Arabia is the latest country to join a multinational initiative for a central bank digital currency (CBDC), amid growing interest from the Gulf state in future forms of money.

The Bank for International Settlements (BIS) announced on Wednesday that Saudi Arabia is joining the mBridge project as a “full participant”. The project seeks a multi-central bank digital currency platform to enable cross-border payments, the bank said in a press release on Wednesday.

BIS is a financial institution owned by its member central banks. The purpose of the Bank is to support cooperation between central banks and to act as a bank for central banks. The central banks of Saudi Arabia, the United Arab Emirates and Israel are among the bank’s 63 members.

Work on Project M Bridge began in 2021 in collaboration between the BIS, the Central Bank of the United Arab Emirates, the People’s Bank of China, the Hong Kong Monetary Authority and the Bank of Thailand. According to BIS, the project also has 26 observer members.

What it means: Digital currency refers to currency that is available entirely in digital or electronic form. As a result, digital currencies can only be accessed through a computer, smartphone, tablet or the like. CBDC refers to a digital currency issued by a central bank and serves as a digital form of a country’s fiat currency that is equal in value. Cryptocurrency is another form of digital currency.

According to Reuters, about 135 countries and currency unions are exploring CBDCs, although the use of CBDCs as an alternative to hard currency is currently not widespread. The US Federal Reserve is among the institutions considering the launch of a CBDC.

According to the BIS, Project mBridge was launched to make payments between different countries faster, less expensive and better equipped to deal with locations that are not well connected to the global financial system.

“Multi-CBDC arrangements, which connect different jurisdictions in a common technological infrastructure, will improve existing systems and enable cross-border payments to be made quickly, cheaply and globally with final settlement,” the bank said in the release. Allow access.”

Why this is important: Saudi Arabia’s entry into the Bank for International Settlements’ CBDC project comes amid growing interest in digital currency in the region. In March, Israeli cryptocurrency firm Bits of Bold announced plans to launch a digital coin backed by the shekel.

That same month, the UAE’s central bank said it would begin working with India on the feasibility of a digital dirham.

Saudi Arabia has shown particular interest in cryptocurrency. In September last year, blockchain analysis firm Chainalysis ranked the kingdom as the country with the highest growth in cryptocurrency transactions over the past 12 months.

Learn more: The growing interest in digital and cryptocurrency in the region coincides with efforts to reduce dependence on the US dollar. China is trying to denominate oil transactions in yuan, an effort that could be boosted by a $6.93 billion currency swap agreement between the Saudi and Chinese central banks in November.

In March 2023, China settled gas trade with the UAE for the first time in yuan.

Russia and Iran, both subject to extensive Western sanctions, are trying to undercut the U.S. dollar in bilateral trade.

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