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Project Aber FAQ

In light of the rapid developments that we are witnessing today, especially in the field of innovative financial technologies, a number of central banks and relevant international organizations have started to study the dimensions, expected impacts and uses of certain products and technologies. The most important of them are the digital currency of central banks and blockchain and distributed ledger technologies. As a start point, those studies have mainly attempted to validate the concept from a technical point of view. They have focused on examining such technologies and their expected effects on financial transactions.

Saudi Central Bank has worked in partnership with the Central Bank of the United Arab Emirates (CBUAE) to trial a common wholesale central bank digital currency (wholesale Central bank digital currency) through the application of distributed ledger technology (DLT). A number of banks participating in the project from both sides have used the common digital currency for cross-border payments.

 

What is Project Aber?

Aber is an innovative initiative, launched jointly by SAMA and the Central Bank of the United Arab Emirates (CBUAE). The project aims to study and evaluate the feasibility of using distributed ledger technology to develop cross-border payment systems between Saudi Arabia and the UAE. The project phases have been designed, implemented, managed, and operated over one year.

 

What is the added value of Project Aber?

Project Aber provides an opportunity to study distributed ledger-based infrastructure, the technical dimensions of the central bank digital currency (CBDC), ways of issuance and trading of the CBDCs, and interbank settlements. This pilot project aims to prove the viability of using specific technologies and to understand the technical and operational effects on the current infrastructure. Therefore, it will provide some data that would form the base on which other studies could be built. Such future studies might explore the effects of distributed ledger technologies on the financial policy and stability.

 

What is the expected effect of the project on financial innovation?

Project Aber is one of the pioneering experiments around the world as it uses distributed ledgers to make cross-border financial transactions. The project has been carried out under the supervision of the two central banks (SAMA and the CBUAE) and with the participation of a number of their regulated banks. This pilot project will enhance financial innovation as it intends to test a specific idea. It will provide central bank counterparts and stakeholders with a better image of the challenges, accompanying technical risks, and the mechanisms adopted to overcome and address them.

 

What is the nature of the currency used in this project?

For the purposes of this project, an experimental digital currency was jointly issued and fully backed by SAMA and the CBUAE. The digital currency uses encryption and is based on distributed ledgers. It is intended for use by only the two central banks and the participating banks in Saudi Arabia and the UAE.

 

What is Wholesale CBDC?

Although there is no agreed-upon official definition, a wholesale central bank digital currency (wholesale CBDC) may be described as a unit of digital payments issued by a central bank and that has the status of legal tender. The digital currencies are classified, as per the nature of their users or the purpose of their issuance, into two types: (1) Wholesale CBDC for the use of financial institutions, especially banks and payment companies, for interbank transfers and settlements (this type is used in Project Aber), and (2) Retail CBDC for consumer use in payment transactions.

 

Did the project use real funds?

The use and linking of real funds were of the key features of the Project Aber. The participating commercial banks provided real funds from their reserves at the central banks to finance their digital currency accounts.

The use of actual funds has helped central and commercial banks to study the mechanisms and methods through which digital currency will be managed in their ledgers, and to identify the basic banking systems that would be affected in case of implementing and expanding the scope of such system in the actual operational environment. The pilot project provided a number of learned lessons and valuable observations to commercial banks that they would not have had without using actual funds.

 

What is the purpose of the common wholesale CBDC?

This currency was issued by the central banks of both countries as part of this project to determine the technologies and technical platforms most appropriate for the use of central banks. The project also studied CBDC performance in banking transactions and impact on several levels. It should also be noted that the issued CBDC was limited to the use of the two central banks and the banks participating in the project.

 

Is this digital currency an alternative to the Saudi riyal or the Emirati dirham? And is it available to individuals or financial institutions?

The digital currency is not an alternative or substitute to the official currencies used in both countries. The digital currency is issued for limited experimental transactions in accordance with the framework of the project only, through the central banks of both countries and the banks participating in the pilot project.

 

Can this digital currency be circulated?

The issued digital currency is non-circulating currency by virtue of its experimental nature and limited use for the purposes of Project Aber.

 

Can individuals or other entities use this digital currency?

Individuals and other entities cannot use this digital currency, as it is issued exclusively for the use of the two central banks and the banks participating in the project.

 

Has the project demonstrated the feasibility of distributed ledger technology in raising the level of performance without compromising user privacy?

User privacy is one of the most important principles of choosing the technology used in the project, in addition to being a basic requirement for designing the solution used in Project Aber. During the project, the system was designed with high levels of privacy while making the most of the features of distributed ledger technologies.

Was the blockchain used in the pilot project open or closed?

The pilot project used closed blockchain due to the limited number of participating parties and in order to achieve the optimal risk management.

 

How does the central bank issue and destroy the CBDC in the pilot project?

The solution designed in Project Aber allows central banks only to issue and destroy the digital currency. Therefore, the digital currency will be issued and destroyed by a request through which the central bank converts cash into digital currency and vice versa via the account of the commercial bank. 

 

Was the impact on monetary policy and financial stability measured in the pilot project? And why?

Project Aber addressed only the technical and operational aspects of using blockchain and distributed ledger technologies for CBDC. Thus, the economic impact, especially on monetary policy and financial stability, and the regulatory implications are suggested for further study in the future. This includes decisions related to monetary areas, such as exchange rates and interest rates that must be applied to the CBDC.  

 

What is coming next based on Project Aber?

Project Aber was developed based on the experiences and projects completed in this field. In turn, Project Aber significantly and valuably contributed to the aspects included in the project. The same applies to subsequent projects, as they can benefit from what has been achieved by Project Aber in order to expand knowledge and expertise in issuing CBDC and using blockchain and distributed ledger technologies in cross-border payments.

 

Open Market Operations

Open Market Operations: Background and Objectives

The Saudi Central Bank has launched complementary open market operations ("OMO") to its current offering of SAMA Bills to enhance short-term liquidity management in the local banking system.

 

What are Open Market Operations?

 OMO are used by SAMA as tools to inject and withdraw short-term liquidity to and from the local banking system, in a manner consistent with its mandate of maintaining monetary and financial stability in the Kingdom.

By launching the latest complementary element, SAMA aims to address potential short-term liquidity needs in the local banking system on a systematic basis. In liquidity injecting transactions SAMA purchases eligible securities, as defined by SAMA's collateral policy, with an agreement to resell the securities at a future date. The difference between the purchase and resale price will reflect the lending rate.

 

How will SAMA determine the short-term liquidity needs of the local banking system?

 SAMA manages short-term system liquidity based on a number of considerations, including, but not limited to, SAMA's assessment of current and projected liquidity conditions as well as desired policy outcome(s).

 

How often will liquidity injecting OMO be offered?

 A certain level of liquidity will be offered regularly via OMO on a biweekly basis. However, SAMA may offer liquidity via OMO on an ad hoc basis if it deems necessary.

 

What are the maturities of the regular liquidity injecting OMO?

Beyond SAMA's standing overnight repo facility, liquidity injecting OMO will be conducted regularly (biweekly) over three different tenors, namely, 7 days, 14 days and 28 days, which together reflect the specific needs of the local banking system.

 

What is the Open Market Operations' pricing?

 Pricing will be determined based on SAMA's assessment of local liquidity needs and desired policy outcome(s).

 

Which parties are eligible to participate in liquidity injecting OMO?

 The eligibility criteria for participating in the liquidity injecting OMO matches those for SAMA's overnight repo facility, such that any entity with a valid SAMA banking license and access to the Saudi Arabian Riyal Interbank Express "SARIE" (i.e. local banks and branches of foreign banks) is eligible.

What is meant by the bulletin of foreign exchange rates against the Saudi Riyal issued monthly by the Saudi Central Bank (SAMA)?

SAMA issues this monthly bulletin for use by government agencies only; it is not intended for the public and it does not reflect the actual index of exchange rates prevailing in the market.

Are the rates issued by SAMA binding to local banks to apply in banking transactions?

Exchange rates fluctuate rapidly and each bank has a certain margin of profit in the process of selling and buying, so rates issued by SAMA are not binding to banks to apply.

What sources on which SAMA relies for issuing foreign exchange rates?

 SAMA depends on global markets through specialized global   information networks such as: Bloomberg and Reuters.

Which entities can request the transfer or issuance of a cheque in foreign currencies through SAMA?

Government agencies and local and foreign banks by cheques drawn on SAMA or by debit entry in an account opened with SAMA.

What are the currencies which SAMA transfers or issues a foreign check in?

SAMA receives requests for transfer or issuance of foreign cheques in all foreign currencies available.

What is the competent department at SAMA that handles transfers or issues cheques in foreign currencies?

It is the Remittances Department. Correspondence is directed to His Excellency Director of the Remittances Department at SAMA headquarters in Riyadh.

What procedures are in place to request the issue of a real estate title deed for a property owned by the title deed which is lost?

1.       SAMA receives letters from a number of official agencies such as courts and Notaries Public enquiring about missing title deeds to issue replacements thereof.       2.  Circulars are sent to banks in three combinations a week, then ten days are set from the date of the circular to provide SAMA with any comments on title deeds mortgaged to them. 3 - After the expiry of the time limit, and, in the event of non-receipt of comments from any of the banks operating in the Kingdom, an answer is provided to all agencies that have already inquired about the missing title deeds.