Saudi Arabia Joins China-Led CBDC Trial, Eyes Shift Away from Dollar in Oil Trade

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LONDON, June 5 (Reuters) – Saudi Arabia has entered into a pivotal central bank digital currency (CBDC) cross-border trial dominated by China, marking a potential shift away from conducting a significant portion of the world’s oil trade in U.S. dollars.

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The Bank for International Settlements announced on Wednesday that Saudi Arabia’s central bank will now be a “full participant” in Project mBridge. Launched in 2021, mBridge is a collaborative effort involving the central banks of China, Hong Kong, Thailand, and the United Arab Emirates, overseen by the global central bank umbrella organization, BIS.

According to the BIS, mBridge has progressed to the “minimum viable product” stage, signaling a transition beyond the prototype phase. This development comes as approximately 135 countries and currency unions, encompassing 98% of global GDP, explore the potential of CBDCs.

“The addition of a major G20 economy and the world’s largest oil exporter to the most advanced cross-border CBDC project is significant,” noted Josh Lipsky, who manages a global CBDC tracker at the U.S.-based Atlantic Council. “In the coming year, we anticipate an expansion of commodity settlements on the platform outside of the dollar, bolstered by new technological capabilities.”

mBridge transactions will leverage the underlying code of China’s digital yuan, which is also accessible to the project’s 26 other “observing members,” including entities like the New York branch of the Federal Reserve, the International Monetary Fund, and the European Central Bank.

The BIS further highlighted that the mBridge platform now supports compatibility with the Ethereum Virtual Machine, a fundamental component of the Ether cryptocurrency network, positioning it as an experimental ground for future innovations.

Supporters of CBDCs argue that these digital currencies will modernize payment systems with enhanced functionality and serve as a viable alternative to physical cash, which is experiencing declining usage trends. However, challenges persist, including limited adoption in countries like Nigeria where initial CBDC implementations have faced resistance, citing concerns over government surveillance.

While China continues to lead with the largest domestic CBDC pilot encompassing 260 million people across 200 use-case scenarios, other major economies such as India, Brazil, and Russia plan CBDC launches within the next 1-2 years. Concurrently, the European Central Bank has initiated a digital euro pilot program, setting the stage for a potential launch in 2028.

In contrast, the U.S. legislative landscape remains cautious, with the House of Representatives passing a bill prohibiting the Federal Reserve from developing a “digital dollar.” The bill awaits Senate approval to become law, highlighting divergent approaches among global economic powers towards digital currency innovation.

By Naija247news
By Naija247newshttps://www.naija247news.com/
Naija247news is an investigative news platform that tracks news on Nigerian Economy, Business, Politics, Financial and Africa and Global Economy.

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