Recent developments in the Middle East have facilitated an environment more conducive to cryptocurrency and blockchain technology in countries like Saudi Arabia, UAE, and Dubai. Increasing adoption of digital currency usage is taking place, thanks to the recent declaration of cryptocurrency usage being sharia compatible. Now, moves are afoot to fast-track the number of contributors to the Middle East cryptocurrency market. A pilot scheme with the Saudi Arabia/UAE trade platform known as FASAH has already been linked with the Maersk TradeLens blockchain and IBM.
In January 2019, Emirate News Agency reported that Saudi Arabia and the UAE (United Arab Emirates) were collaborating on the creation of a digital currency. A total of 16 delegates from Abu Dhabi and Saudi Arabia met up to discuss the issue of cryptocurrency usage. This development is one 7 initiatives of the Strategy of Resolve. Others include financial awareness training, and civil aviation. Based on the report, the use of virtual currency will be geared towards banking institutions.
Saudi Arabia and the UAE are exploring the possibilities of fiduciary currency and its implications on financial policies. The overarching objectives of the initiative are the creation of high technological standards, consumer trust, and assessing cyber security threats. As far back as December 2018, the UAE Central bank was working in concert with the Saudi Arabian Monetary Authority vis-a-vis the issuance of a digital currency for cross-border transactions. Barely a month later, in January 2019 Saudi Arabia and the UAE announced the development of a digital currency known as ‘Aber’. While still in its infancy stages, the raison d'être for the currency’s creation is financial settlements on distributed ledger technologies.
Of course, concerns remain about the safety and security of crypto-related transactions. The Saudi Arabian Finance Ministry recently issued a warning against the purchase of fake digital tokens being sold on behalf of the Saudi Arabian government. On August 21, it was reported that the Saudi Arabian government identified a Singaporean company selling fake Saudi Arabian currencies – SmartRiyal and CryptoRiyal. The ministry indicated that fraudulent operators were masquerading as an official government agency.
The ministry's comments were not aimed at authorized and regulated brokers which currently permit CFD trading in Bitcoin, stocks, and Forex. One such operator, Plus500 offers online Bitcoin trading in the form of derivatives trading instruments a.k.a. contracts for difference. Brokerages like this do not sell Bitcoins – they simply sell a contract which allows the user to speculate on the future price of the underlying financial instrument.
There have been multiple rumors of possible collaborations between Saudi Arabia and the UAE with respect to digital currencies and two-way interbank settlements. The reasons for creating the cryptocurrency network include the assessment of the technical risks, and the reduction of money transfer costs.
Following the technical aspects of crypto collaboration between Saudi Arabia and the UAE, the next step involves the economic and regulatory measures. The task committee is not looking to replace fiduciary currency and established financial systems with crypto; is simply looking to evaluate how digital currency can support international money transfers more effectively.
Other Gulf nations such as Bahrain are working alongside Saudi Arabia and the UAE to increase awareness of blockchain technologies and cryptocurrencies. One of the prominent Saudi banks (SABB) has already teamed up with Ripple in California to deliver an instant international money transfer option for its customers.
Blockchain technology is rapidly gaining ground in Saudi Arabia, and across several countries in the Middle East. Crypto companies are also looking towards wealthy investors in the Middle East to finance their operations. Another interesting development is linked to sharia law and the blockchain ecosystem.
Recently, the Ethereum Foundation joined forces with financial experts to assess the compatibility of their system with Islamic law. There is increasing acceptance of blockchain technology across the Gulf region, notably with Series A equity funding worth millions of dollars through multiple corporations.
Many use cases abound, notably the National Bank of Abu Dhabi and their agreement with Ripple for streamlined monetary transactions, ADNOC (Abu Dhabi National Oil Company) and their partnership with IBM for a blockchain-style automated system, and S&P Global Platts which is working with the Fujairah Oil Industry Zone on a new blockchain network.