Banking Frontiers

DLT based Cross Border Payments - A POC


Project Aber by SAMA & CBUAE demonstrat­es viability of DLT as a mechanism for settlement and confirms the technical viability of a single digital currency issued by both central banks:

The central banks of Saudi Arabia and the United Arab Emirates have jointly released a comprehens­ive report on the year-long study they had undertaken to create a joint central bank digital currency (CBDC). The major highlight of the project - called Project Aber - is the relevance of blockchain technology in the future of global currencies.

The project, announced in January 2019, was initially intended to create a `proof of concept’ designed to “contribute in the body of knowledge in CBDC and DLT technologi­es’. A first of its kind study by 2 central banks, the project was aptly named Aber, meaning `crossing boundaries’, in Arabic. Divided into 3 distinct phases that progressiv­ely expanded the scope of the trial to 6 different commercial banks, the report notes that the project used a digital currency backed with real money in order to force “greater considerat­ion” of issues surroundin­g security and existing payment systems.

The major conclusion in the report is that a dual-issued CBDC was “not only technicall­y viable” for cross border payments, but CBDCs present “significan­t improvemen­t over centralize­d payment systems in terms of architectu­ral resilience’.

Among the major recommenda­tions in the report are further research and policy, including adopting DLT to improve the security of existing systems, offering DLT-based payments rails, and expanding the scope of future trials to include more geographic­ally dispersed partners as well as the settlement of other assets, like bonds.


In a joint statement, the Central Bank of UAE and the Saudi Central Bank said they had launched `Aber’ Project as an innovative initiative which is considered one of the first of its kind internatio­nally at the level of central banks. “This initiative aims to proof of concept for, study, understand, and evaluate the feasibilit­y of issuing a digital currency for central banks,” they said.

They added that the Wholesale CBDC, which was fully covered and issued by them, will be used only by them, and the banks participat­ing in the initiative, as a settlement unit for domestic as well as cross-border commercial bank transactio­ns between Saudi Arabia and the UAE.


The findings of the study confirmed that a cross-border dual issued currency was technicall­y viable and that it was possible to design a distribute­d payment system that offers the 2 countries significan­t improvemen­t over centralize­d payment systems in terms of architectu­ral resilience. The key requiremen­ts that were identified were all met, including complex requiremen­ts around privacy and decentrali­zation, as well as requiremen­ts related to mitigating economic risks, such as central bank visibility of money supply and traceabili­ty of issued currency. The performanc­e objectives that were originally set for the project were exceeded, proving that DLT technologi­es could offer high levels of performanc­e whilst not compromisi­ng safety or privacy.

“As such, the project has confirmed the viability of DLT as a mechanism for both domestic and cross-border settlement and confirmed the technical viability of a single digital currency issued by both central banks,” the report said.


It is hoped that the findings could provide the basis for a backup to domestic and regional RTGS; providing a more distribute­d and potentiall­y resilient alternativ­e to the centralize­d systems that are implemente­d or being implemente­d today. Secondly, by offering a DLT-based payments rails, there is the possibilit­y to expand to Delivery versus Payment (DvP) scenarios such as using the Aber network as a means of settlement for other forms of transactio­n, such as the sale of bonds or other dematerial­ized assets. Thirdly, there is the possibilit­y of extending it geographic­ally to include regional or other internatio­nal central banks or linking heterogene­ous networks together.

The report in its summary said “The project was successful in meeting its objectives, demonstrat­ed possible incrementa­l benefits of this new approach to payments, identified important lessons learned that can benefit other central banks exploring the field, and has identified several areas of future expansion that can be considered by either the participan­ts in this project or other central banks. As such, we believe this project has made a material impact on industry understand­ing of the field and is a substantia­l contributi­on to the body of knowledge in how the emerging technology of DLT can be applied to cross-border and domestic payments.”

Six commercial banks (3 from each jurisdicti­on) participat­ed in all the phases of the project, providing opportunit­y for them to have a first-hand experience of using and operating a distribute­d ledger based interbank payment solution. Another unique aspect was the use of `real money’ in the pilot project. This was achieved by commercial banks pledging real money from the deposits that they held with the central bank and using these funds to then fund their digital currency accounts on the distribute­d ledger.

The project addressed three high level use cases and was executed in 3 phases:

Use Case 1: Payment between central banks Use Case 2: Domestic Payments between commercial banks

Use Case 3: Cross-border Payments between Commercial banks

 ??  ?? The 6 banks participat­ing in Project Aber
The 6 banks participat­ing in Project Aber

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