The UAE and Saudi Arabia have not begun using digital currencies for cross-border settlements, backed by their fiat, the central banks of both states said in a joint statement.
The two institutions were working on a proof of concept (PoC) to experiment with blockchain technology to facilitate cross-border payments. However, the pilot was still at an early stage, the the banks said.
The PoC would help to "gain a deeper understanding of the feasibility of distributed ledger technology in this field and explore the potential opportunities and benefits of a digital currency," the statement added.
Cryptocurrency adoption has been increasing in the region, with Bahrain's central bank issuing draft rules on trading in the virtual currencies on Thursday. The comprehensive framework introduced by the country's central bank will cover requirements for licensing, financial resources, as well as measures to safeguard client or customer interests, technology standards and cyber security risk manage measures.
The Saudi Monetary Authority and the Central Bank of the UAE are looking to complete their joint project in the last quarter of 2019, having chosen a technology firm to support the implementation of the pilot.
"Once completed, the outcome will determine whether a digital currency could be introduced in normal market operations between the two countries," the statement added.