Saudi-UAE cryptocurrency pilot could revolutionise cross-border payments



The central banks of the UAE and Saudi Arabia want to pilot a shared digital currency for cross-border bank transactions, they said on Saturday, a move that could revolutionise the remittance industry and build investor faith in cryptocurrencies, according to experts.

“This partnership between the UAE and Saudi Arabia is a great sign for the region’s emerging cryptocurrency environment and hopefully other countries will follow,” said Andrea Bonaceto, chief executive of Eterna Capital, a fund manager in London that gives investors access to blockchain-related investment opportunities.

Blockchain, an electronic transaction processing and archive system, is the underlying technology on which cryptocurrencies such as Bitcoin operate. It allows parties to log information in a secure network without the need for third-party verification, reducing instances of fraud and loss of information.

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Banks, governments, exchange houses and financial services companies are increasingly looking to adopt emerging technologies such as blockchain to cut the costs of doing business. Spending on blockchain technology in the Middle East and Africa was projected to double in 2018 to $80.8 million, up 107 per cent from $38.9m in 2017, according to IDC last February.

For the GCC region – which accounts for a sizeable proportion of total global remittances each year, according to the World Bank – a blockchain-based system could revolutionise banks' cross-border payments mechanisms, said experts.

“Distributed ledger technology is all about improving the speed, security and efficacy of transactions, so this could be a revolution,” said Hans Fraikin, chief executive of the Libra Project based in Abu Dhabi, which is developing virtual equity tokens to finance green energy infrastructure.

“It’s a no brainer,” added Mr Bonaceto.

“Blockchain can enable transactions to settle at almost zero cost for banks.”

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“While the pilot does not directly impact the cryptocurrency trading and investment market, it is one of the first government-led initiatives that demonstrates a specific use case for blockchain, and shows that its impact across industries should be taken seriously,” Mr Bonaceto said.

The Saudi-Emirati Co-ordination Council, a group of officials from the two countries formed last year, said on Saturday it is looking to develop and test the shared virtual currency as part of a previously announced blockchain pilot to assess the feasibility of widespread adoption of the technology.

The "first of its kind" cryptocurrency was one of seven initiatives announced during the first meeting of the council last week, according to the UAE's state news agency Wam. "The cross-border digital currency will be strictly targeted at banks in an experimental phase with the aim of better understanding the implications of blockchain technology and facilitating cross-border payments," it reported.

The proposed currency will rely on use of a blockchain database between the two central banks – Saudi Monetary Authority and UAE Central Bank – and participating retail banks. It will aim to "safeguard customer interests, set technology standards and assess cybersecurity risks and determine the impact of a central currency on monetary policies", said Wam.

In December, the two institutions confirmed they were working on the blockchain pilot to show how the technology could facilitate cheaper and faster cross-border payments using a shared digital currency.

The pilot is still in an early stage with few details known.

COMPANY PROFILE

Name: Xpanceo

Started: 2018

Founders: Roman Axelrod, Valentyn Volkov

Based: Dubai, UAE

Industry: Smart contact lenses, augmented/virtual reality

Funding: $40 million

Investor: Opportunity Venture (Asia)

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Emergency phone numbers in the UAE

Estijaba – 8001717 –  number to call to request coronavirus testing

Ministry of Health and Prevention – 80011111

Dubai Health Authority – 800342 – The number to book a free video or voice consultation with a doctor or connect to a local health centre

Emirates airline – 600555555

Etihad Airways – 600555666

Ambulance – 998

Knowledge and Human Development Authority – 8005432 ext. 4 for Covid-19 queries


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