The two countries plan an initial trial to determine whether a shared cryptocurrency can create new opportunities for free trade.
Economic partners aim to reduce trade costs
In winter 2018, the government of the United Arab Emirates announced plans to implement new legislation designed to establish clear legal frameworks for the rapidly growing crypto market in the region. There is growing evidence that Arab investors are increasingly enthusiastic about digital currencies, and new blockchain companies have been appearing locally for some time. Now the Emirates, together with Saudi Arabia as a key regional partner, appear to be taking the initiative one step further. The two states are reportedly planning a joint currency that would function as a quasi-competitor to Bitcoin, Ether and other coins that are gaining followers across the Arab world.
A stable trade system to be enhanced by a new currency
In some respects, this move follows initiatives seen in other countries such as Iran or Venezuela, though the motivations differ. While Venezuela, for example, introduced the state token “Petro” to combat extreme inflation and address an economic crisis, the collaboration between Saudi Arabia and the United Arab Emirates is not driven by crisis management. Instead, the two countries are already economically intertwined, and according to a joint statement they issued, a shared cryptocurrency is intended to deepen that cooperation.
State-backed cryptocurrencies are under consideration in many places
The proposed currency aims primarily to eliminate the complications caused by multiple national currencies in cross-border trade. By reducing the need for currency conversion, the partners hope to cut high transaction costs. During the initial test phase the system is not intended for ordinary investors or businesses; only central banks would have access to the new currency network. If the concept proves successful, however, it could be expanded later. Similar discussions are taking place within the EU and other regions about whether cryptocurrencies might be a useful component in new tariff-free free trade agreements.
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