Crypto zealots pride themselves on their independence from any central banking authority, but there has been an ongoing debate as to whether central banks should embrace digital currencies and create coins, which they would control. The idea has been promoted at the highest levels, especially for the citizens dwelling in developing countries. The news today is that Saudi Arabia and the United Arab Emirates (UAE) will combine efforts to develop a cryptocurrency to facilitate cross-border payments.
A bank-controlled crypto coin may seem like anathema to a hardcore cryptocurrency zealot, but the idea became international news last November when IMF chief Christine Lagarde chose to share her opinions at a FinTech Festival summit meeting in Singapore: “Digital currencies are likely to become more convenient to use and integrated with social media. They will be readily available for online and person-to-person use, including making micro-payments… Having central banks issue digital currency can bring about financial inclusivity, better security and consumer protection, as well as allay privacy concerns.”
Ms Lagarde’s comments caused a stir in the industry, which contributed to a sudden slump in crypto valuations, but none of her central banking brethren came forward to speak in support of her views. Most regulatory agencies have been wrangling with the digital currency concept for years, searching for existing regulations that could be used to police exchange compromises and protect investors from outright fraud. Positions may have softened of late, but regulatory skirmishes are far from over.
The UAE has already let it be known that it wishes to be a center for blockchain-related businesses and is drawing up favorable legislation for that purpose. It joins a long list of financial centers vying for favor amongst crypto executives. This list includes countries like Malta, Gibraltar, Bermuda, Seychelles and Switzerland.
The UAE official news agency, Emirate News Agency, reported on January 19 that, “the Executive Committee of the Saudi-Emirati Coordination Council has held a meeting in UAE capital Abu Dhabi, with 16 members in total from both countries, in order to discuss the joint initiatives in the Strategy of Resolve.”
The report went on to add: “The Strategy of Resolve is comprised of seven initiatives, including civil aviation, financial awareness youth training, and the development of a cross-border digital currency… [The cryptocurrency] will be strictly targeted for banks at an experimental phase with the aim of better understanding the implications of blockchain technology and facilitating cross-border payments.”
At this stage, the initiative has four objectives: 1) protect customer interest; 2) create standards for technology; 3) consider cybersecurity risks and 4) determine the impact of a central currency on monetary policies.
Saudi Arabia and the UAE were not the only countries in the news this week that are considering a central bank controlled cryptocurrency. News out of Russia is that there is “a very serious discussion on the floor of the Duma and in the Kremlin about crypto-rubles.” The coin would be managed by the central bank, for use by citizens, businesses, and investors. A launch date within two years was noted in the press.