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Middle Eastern Central Bank Digital Currencies and the World

Middle east set to provide interesting CBDC offerings

  • There is a rush globally to develop the first Central Bank Digital Currency (CBDC) 
  • Trade regions like the Middle-East are uniquly positioned to take advantage of CBDC as big energy producers and price setters
  • Some countries have already made huge strides in developing their CBDCs like China
  • The risk of privacy invasion with CBDC seem almost impossible to seperate and can increase usage of other non-CBDC crypto assets and cash
  • Open public blockchains such as Bitcoin's and Ethereum's blockchain are already taking a major lead while CBDCs lag
  • Middle East is in a squeeze to attract talent in general, particually in blockchain and crypto development and need new regulations to intice forigen tech workers

Also known as a CBDC, Central Bank Digital Currency is a new type of digital currency that is operated and regulated by a monetary authority of a country. Biggest change to come out of CBDC is to cut out local banks in their role money supply and have a currency that function better on the internet.

CBDC will be different from decentralized currencies like Bitcoin because it will be controlled centrally by a central bank blockchain, albeit that blockchain has potential to grow more decentralized as adoption increases and if made more public, with less controls.

CBDC are important because like other blockchain, they can be programmed and can make money actually work over the internet, this means less processing times and reduced costs with higher fidelity on every single transaction. On the negative side, it can force people to only buy certain things and and further restrict money usage more than it is already today. In other words, a central banker's wet dream.

While several governments worldwide are already experimenting with their viability, none have officially launched their own CBDC as yet. And while it may seem that CBDCs are still in the exploratory stage there seems to be a big rush by certain countries to have produce the frst functioning CBDC.

Sweden for example is expermenting with CBDCs with Isreal, while China already and their new digital yuan, AKA: e-CNY, is already seeing some use today.

But is the first mover advantage important? Probably not, what is important is the country's continued value and involvement in global trade in the future, on that matter, the Middle East is in a key position due to their role in powering the world through oil.

Of course the US can’t be ignored but this article isn’t exploring the obvious. It also can be argued that the US is way ahead as all major stablecoins are in USD, for example USDT and USDC. 

However, back to energy. Demand for more energy isn’t likely to go away, in fact it will probably exponentially increase as we advance, which leads to the big question of where is the Middle East when it comes to CBDCs?


👉Where Is The Middle East With Their CBDC?

While Kuwait, Oman, Saudi Arabia, UAE, Iran and other Middle Eastern countries have long relied on  energy resources for economic growth, the global demand for oil should reduce over the long term as global mandates for greener energy kick in and the newfound interest in nuclear power. Not to mention new oil wells being discovered in the US. This has led to increased diversification within the Middle East towards investments in alternative sectors like tourism, technology and finance.

The central banks from over 20 banks have been collaborating with The Central Bank of the United Arab Emirates CBDC pilot, and that concluded that CBDC are useful for cross-boarder payments, particually by the low-income market particpents.

UAE's joint CBDC project which was previously called the Project Aber, which was annoucemend in the report back in 2020 and already state the favourable results in regards to the accuracy and settlement speed of CBDCs.

The Saudi Central Bank and the Central Bank of UAE both agreed that the project tests for blockchain digital currencies were a success. Both countries reported that a dual-issued CBDC would be technically viable for cross border payments, as it would be an improvement over current centralised payment systems, like SWIFT, while significantly speeding up processing.

UAE taking the lead with CBDC comes at no suprise as they have the most lose as a Middle Eastern international hub. It is likely other countries in the region will likely follow suit and begin accepting UAEs CBDC.

There is also a chance that competition can come from uprising fintech businesses that are not afraid to use alternative digital assets like Bitcoin and Ethereum. There is already proof of this happening today with an increasing number of open financial technologies on the rise, the pressure is on to roll out a CBDCs to compete not only with public blockchain in use today but with every other country on earth.


👉Countries race towards CBDCs

Despite the perceived rush to develop the first CBDC, a fully operational CBDC has yet to be launched on a large scale by any country. That being said, as mentioned, the People’s Bank of China has already tested their own digital Yuan currency.

China is the favourite example to use when pitching CBDCs, and is often to pressure decison makers within the central bank and the government to move quickly on their own CBDC in fear of a Chinese CBDC global take over.

But is the threat of a Chinese CBDC taking over the world realistic? My gut feeling says probably not and here is why.

In the above bar chart (above data source is from Bloomberg), you might, if you look very closely, see some gray. That's China's share of forige exchange, in other words how much their currency is actually used globally. The threat of the Chinese Yuan over taking, even with a fancy technological CBDC is small due to its actual uselessness in global commerce today.

You only need to look at the data and you will see Chinese currency is barely in the game dispite all the noise. Couple that with Chinese unpopular status globally right now then it will take major global values and cultural shift to use a CBDC controlled by China.

Instead the rapid development of a CBDC from China is likely motivated by fear of losing control over its own country and its own people. It is a positional play over the populace whom are consistently threating to use other currencies and cryptocurrencies, like Bitcoin, or more even the traditional monies like the good old USD. Bitcoin by Chinese are still highly used by the populace in a P2P manner and abroad within and out of the country despite news headlines saying it is a banned currency, when infact it is not.

How about other countries? Most other countries are still in stuck in the R&D stage, but a few have real data showing that thier CBDCs aren't popular.

One possible issue for CBDC adoption is all the framing and marketing for CBDC come from the government's hostility to cryptocurrencies, and how CBDC as a safer solution. This however will be an uphill battle as there has been a growing mistrust in goverment globally which has made people less likely to adopt CBDC.


👉CBDC Concerns

VC Peter Thiel: You can either invest in 'bits' or 'atoms'

Unsurprisingly, some countries are also trying to use CBDCs as just another way to better keep tabs on their citizens which has brought big privacy concerns around CBDCs. China’s experiment for example was said to be a "totalitarian measuring device” by PayPal founder Peter Thiel.

Whereas Sweden’s coming e-Krona digital currency may have more privacy respecting mechanisms built into the protocol that reflect the country's values. However, there still hasn’t been much evidence that privacy is of any concern, rather it seems to be a common afterthought in every countries pursuit of the worlds first CBDC.

The main takeaway is that CBDC could be programmed to best fit the country's values and needs for bad or good. For example with the likes of Iran and Venezuela their digital currency needs, if they ever where to make one, may to stem more from a need to circumvent US sanctions and ironically could be more private.

To sum it up, the CBDC race is a canary in the coal mine that is a fierce global digital battle for the best global money. It is playing out behind the scene with every dark suited central banker right now.


👉What Impact Will CBDC Have On Bitcoin and Other Crypto Assets?

While the exact implementation details are currently unknown, there are rough frameworks for how the concept of CBDC systems could work. That’s why some commentators have said in the past that CBDC issuance will ultimately destroy other cryptocurrencies, but this is actually a pretty naïve view in my opinion because when CBDCs are eventually rolled out they will be sold to the general public as a more convenient and safer alternative to cash, credit and less as an alternative to crypto (unless the FTX news takes off). CBDC will however complement other legal forms of tender, rather than replace them entirely.

With plenty of brand name companies like PayPal, Square, and Revolut already adopting open native crypto assets their mainstream adoption is already well on its way, ahead of CBDCs and while the introduction of CBDCs may increase competition, it is safe to say that the crypto is way ahead in the adoption cycle.

No matter how you slice it, it’s highly unlikely that CBDC will become any kind of competitive threat to cryptos. In fact, quite the opposite, if CBDCs start eroding privacy, which is the biggest technological problem of CBDCs, it could accelerate adoption into Bitcoin and other more privacy focused crypto like Monero.


👉How open-source financial technology will shape the Middle-East & CBDC?

Going back to the Middle East, the last anyone thinks of when they think of the Middle East is technology, sure the biggest tower is there and other incredible infrastructure feats (man made islands anyone?) but much of the the regions advancement was thanks to amazing outsourcing. Lot of the cool stuff didn't originate there. Save for one area. Finance.

The middle eastern financial services sector remains one of strong and largely independently developed part of the region. It is a well connected hub, but very complex structurely on how money moves from place to place. It also a place that manages a lot of the movement of stuff, with ships, energy and docks, etc.

That is why the region has begun investing in this new emerging financial technology and is trying to find new ways to source the talent to keep ahead which has been an ongoing issue within the region.

Typically sourcing talent involves mass outsourcing of the high tech work to forigen workers, a successful strategy Dubai deployed to build its oasis city in the desert.

More tech workers will need to be mobilized globally in order to upgrade the financial system towards crypto and CBDC infrastructure but with critical skill shortage constraints innovative work arounds are likely needed in order to compete for talent in tech, and to get ahead with blockchain development and CBDCs.

As blockchain technology is inherently open-source much of the technology is already freely available to use, but connecting or integrating blockchain to the traditional financial systems is proving overly complex due to inherent technological differences.

By using open-source blockchain software and pre-setup (white-label) digital assets exchange technology, a lot of the complex blockchain integration is automatically managed, which is good news for countries that want to upgrade their financial system quickly.

A great example of rapid technological integration can be referenced is the South Korean case. The small country managed to provide broadband internet access to almost everyone, propelling the country into an Asian powerhouse.

A similar scenario could play out again in the next decade with the CBDC race in the Middle East and the ever increasing amount of open-source digital money systems already out there today.

CBDCs and crypto technology have the potential to greatly impact commerce, but it is difficult to predict exactly how. One thing is certain: those who start platforms with open bitcoin money systems will have a significant advantage in the global digital economy of the future.


Comments: (2)

A Finextra member
A Finextra member 03 May, 2021, 11:231 like 1 like

This is interesting in the way that most countries are in this sort of race to the digital currency to beat Bitcoin even though they seem to really dislike it. 

Blockchain is the future of finance and now they're trying to insert it within their control - whether it is a good mix or no it is interesting for sure to see that race.

Simon Gegen
Simon Gegen - Holla-Tech - Tbilisi 04 May, 2021, 04:271 like 1 like

This point is really driving it home:

" thing is sure, those operating on a native cryptocurrency system will have a huge head start in the next digital world economy."

Far as I can see the crypto exchanges are so far ahead of the game here and any services already using public blockchains are probably going to have the head start.

Why wait for these CBDCs. It is a no brainer Just use what is open-source and useful today and stay ahead.

Adrian Pollard

Adrian Pollard

Trader and Crypto Enthusiast


Member since

09 Dec 2020



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