World heading for De-Dollarization: Saudi Arabia now open to multi-currency trade with other nations

The lapsed security agreement, signed by the United States of America and Saudi Arabia on June 8, 1974 establishes two joint commissions one on economic cooperation and the other on Saudi Arabia’s military needs and was said to have heralded an era of increasingly close cooperation between the two countries.

American officials at the time expressed that optimism that the deal would motivate Saudi Arabia to ramp up its oil production. They also envisioned it as a blueprint for fostering economic collaboration between Washington and other Arab countries.

The crucial decision to not renew the contract enables Saudi Arabia to sell oil and other goods in multiple currencies including the Chinese RMB, Euros, Yen and Yuan instead of exclusively in US dollars. Additionally, the potential use of digital currencies like Bitcoin may also be considered. This latest development signifies a major shift from the US dollar.

In a more recent move Saudi Arabia has announced its involvement in Project MBridge, a project which explores the multi-central digital bank currency (CBDC) platform shared among the participating central banks and commercial banks. It is built on distributed ledger technology (DLT) to enable instant cross border payment settlements and foreign exchange transactions. The project has more than 26 observing members including the South African Reserve Bank, which was greenlighted as a member this month.

The better-known observing members of MBridge are those of Bank of Israel, Bank of Namibia, Bank of France, Central Bank of Bahrain, Central Bank of Egypt, Central bank of Jordan European Central Bank, the International Monetary Fund (IMF), the Federal Bank of Australia and the World Bank. In tandem, the project steering committee has created a bespoke governance and legal framework, including a rulebook tailored to match the platforms unique decentralized status.

Project MBridge is the result of extensive collaboration starting in 2021 between the BIS Innovation Hub, the Bank of Thailand, the Central Bank of United Arab Emirates, the Digital Currency of the Institute of the People’s Bank of China and the Hong Kong Monetary Authority.

In 2022, a pilot with real value transactions was conducted. Since then, the MBridge project team has been exploring whether thr prototype platform could evolve to become a Minimum Viable Product (MVP), a stage now reached. As it enters the MVP Stage project MBridge is now inviting private sector firms to propose new solutions and use cases that could have help develop the platform and showcase all its potential.