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The Saudi Central Bank (SAMA) recently announced that it is continuing to experiment with the adoption of a Central Bank Digital Currency (CBDC), as it is working on a phase of a project that focuses on domestic wholesale of currency use cases in collaboration with local banks and fintech.

CBDC is generally known as digital currency issued by central banks, which creates a liability on them similar to the liability created when they issue traditional banknote money. The main difference between both is that traditional banknotes are money issued in physical format, while digital money, or electronic money, is a type of currency that is produced and made available only in a digital format.

Issuing digital money is much cheaper than issuing traditional money, such as banknotes and coins. Furthermore, digital money allows for instantaneous transactions regardless of the boundaries and the time horizon, whereas physical cash does not provide that flexibility.

It is very important to note that digital currency is very different from cryptocurrency, as digital currency is backed by real money and possesses the same legal acceptance and enforcement as physical money, while the latter does not possess any legal acceptance. Moreover, the status of cryptocurrency is still ambiguous worldwide, since no central bank and country in the world, with the exception of El Salvador, has approved it yet as a legal currency.

SAMA shifting to the CBDC will support the growth of the digital economy and fintech market in the Kingdom, especially considering that SAMA has introduced an excellent fintech framework and has launched a sandbox to regulate fintech companies in the Kingdom.

One would probably ask why SAMA is experimenting with the adoption of CBDC? The answer is very simple; it is because the experiment comes in line with several central banks around the world that are experimenting with the use of CBDC. It is reported that more than 100 countries, including 19 G20 nations, are now exploring the issuance of CBDC.

In addition, SAMA’s experiment aligns with the Kingdom’s Vision 2030 target of strengthening digital infrastructure. This will lead to a cashless society in which the share of cashless operations will increase to 80 percent in 2030 from the 36 percent recorded in 2019.

In addition, SAMA shifting to the CBDC will support the growth of the digital economy and fintech market in the Kingdom, especially considering that SAMA has introduced an excellent fintech framework and has launched a sandbox to regulate fintech companies in the Kingdom.

It is worth noting that while SAMA is set to continue with its research on CBDC, it will explore the benefits and potential risks of implementing a digital currency.

Although SAMA has not yet made a decision to introduce CBDC in the Kingdom, I believe that it will conduct the CBDC experiment successfully.

My view is based on SAMA’s great achievement with the 2019 “Aber” project, an initiative in collaboration with the Central Bank of the UAE to examine whether distributed ledger technology could contribute to seamless cross-border payments.

• Talat Zaki Hafiz is an economist and financial analyst. Twitter: @TalatHafiz

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