Both Saudi Arabia and the neighboring United Arab Emirates (UAE) have announced that their central banks are to cooperate on the trial of a new cryptocurrency.
The digital currency named Aber was announced in a joint statement released by The Saudi Arabian Monetary Authority (SAMA) and the Central Bank of the UAE. The proof-of-concept trial will be an attempt to lower the cost of transfers using a blockchain-based settlement solution.
Apart from establishing whether a blockchain based system might be able to leverage new technology to reduce remittance costs the project will examine if the system might also be able to be utilized as an additional reserve for domestic payments.
The trial, which has been in the pipeline since last year when the banks began discussing the possibility of low-cost cross border payments, will be limited to specific banks in both countries. Both countries are hoping that a successful outcome could lead to wider use of the technology in the future.
A recent report by the Bank of International Settlements (BIS) which revealed that countries around the world may be keen on creating their own digital coins may have been a starting point for the Aber, which may unite the two nations to further consider cryptocurrency’s economic viability for its future use as a central bank financial tool.
Last year, UAE-based startup Adab Solutions launched the world’s first cryptocurrency exchange that operates with full Sharia law compliance. Sharia law prohibits Muslims from lending money to anybody with the expectation of receiving interest on this amount, regarding fractional reserve lending that the majority of fiat currencies operate with as usury.
Saudi has a far less liberal approach to cryptocurrency banning all virtual currency, including Bitcoin and all other coins. Its reason being, that the Saudi government believes private ownership of cryptocurrency to be a high-risk venture as it is not controlled by the government.