In a recent panel discussion at the World Economic Forum in Riyadh, Bahrain and Saudi Arabia showcased their distinct approaches to adopting Central Bank Digital Currencies (CBDCs). Moderated by Joumanna Bercetche, the session titled "The Central Bank Digital Currencies’ Opportunity in the Middle East" featured key insights from Yazeed Al-Nafjan, Mmaki Jantjies, Khalid Humaidan, and Jihad Azour. Bahrain, led by Central Bank Governor Khaled Humaidan, is taking a proactive stance, aiming to become a hub for digital financial services. In contrast, Saudi Arabia, represented by Yazeed Al-Nafjan of SAMA, adopts a cautious approach, focusing on enhancing its existing advanced payment infrastructure. This divergence highlights the unique paths both nations are forging in the realm of financial technology.

Bahrain's Proactive Approach to Digital Transformation

Khaled Humaidan, Governor of the Central Bank of Bahrain, emphasized Bahrain’s proactive stance in embracing digital transformation within the financial sector. Humaidan highlighted Bahrain’s readiness to leverage digital technologies, citing indicators such as high instant payment per capita, second only to Thailand. Bahrain envisions itself as a hub for digital financial services, welcoming global digital solutions to establish themselves within its borders.

Bahrain's Vision for Digital Financial Services

Bahrain's strategy is rooted in its vision to become a leading hub for digital financial services in the Middle East. The country has been actively working on creating a conducive environment for fintech companies to thrive. This includes regulatory frameworks that support innovation, a robust digital infrastructure, and initiatives to attract global fintech players.

High Instant Payment Per Capita

One of the key indicators of Bahrain's success in digital transformation is its high instant payment per capita. This metric places Bahrain second only to Thailand, showcasing the country's advanced digital payment ecosystem. The widespread adoption of instant payments is a testament to Bahrain's commitment to fostering a cashless economy.

Collaboration with Global Digital Solutions

Bahrain's approach involves collaborating with global digital solutions providers to enhance its financial ecosystem. By welcoming international fintech companies, Bahrain aims to bring cutting-edge technologies and innovative financial services to its market. This collaborative approach is expected to drive further growth and development in the country's digital financial sector.

Saudi Arabia's Cautious Approach to CBDC Adoption

In contrast, Yazeed Al-Nafjan, Deputy Governor of Financial Innovation at SAMA (Saudi Arabian Monetary Authority), presented Saudi Arabia’s cautious approach towards CBDC adoption. Al-Nafjan emphasized Saudi Arabia’s advanced payment infrastructure, stating that, currently, there isn’t a pressing need for retail CBDC given the robustness of the existing systems. Instead, Saudi Arabia focuses on leveraging innovative solutions to enhance the efficiency of its payment infrastructure, with CBDC exploration primarily targeting wholesale markets and cross-border transactions.

Advanced Payment Infrastructure

Saudi Arabia boasts a highly advanced payment infrastructure, which has been a key factor in its cautious approach to CBDC adoption. The existing systems are robust and efficient, reducing the immediate need for a retail CBDC. Instead, Saudi Arabia is exploring the potential of CBDCs in wholesale markets and cross-border transactions.

The Aber Project

One of the notable initiatives in Saudi Arabia's exploration of CBDCs is the Aber project. This collaborative effort between the UAE central bank and SAMA aims to experiment with cross-border transactions using digital currencies. The project has provided valuable insights into the potential benefits and challenges of using CBDCs for international payments.

Participation in the mBridge Project

Saudi Arabia is also participating in the mBridge project of the Bank for International Settlements (BIS). This project focuses on exploring the use of CBDCs for cross-border payments and settlements. By participating in such initiatives, Saudi Arabia aims to stay at the forefront of CBDC research and development while maintaining a cautious approach to implementation.

The Evolution of Cash-Based Systems and CBDCs

Humaidan drew parallels between the evolution of cash-based systems and the trajectory of CBDCs, envisioning a future where CBDCs seamlessly integrate into the digital financial landscape. He emphasized collaboration as pivotal in ensuring smooth cross-border transactions and stressed the ease of transition to digital payments, citing increased adoption rates accelerated by the COVID-19 pandemic.

Seamless Integration into the Digital Financial Landscape

Humaidan's vision for CBDCs involves their seamless integration into the existing digital financial landscape. He believes that CBDCs have the potential to revolutionize the way financial transactions are conducted, making them faster, more secure, and more efficient. This vision aligns with Bahrain's proactive approach to digital transformation.

Importance of Collaboration

Collaboration is a key theme in Humaidan's vision for the future of CBDCs. He emphasized the importance of working together with other countries and international organizations to ensure the smooth implementation of CBDCs. This collaborative approach is expected to facilitate cross-border transactions and enhance the overall efficiency of the global financial system.

Accelerated Adoption Due to COVID-19

The COVID-19 pandemic has accelerated the adoption of digital payments worldwide, and Bahrain is no exception. The increased reliance on digital transactions during the pandemic has highlighted the need for efficient and secure payment systems. This trend is expected to continue, further driving the adoption of CBDCs and other digital financial solutions.

Unique Contexts and Priorities

In summary, while both Bahrain and Saudi Arabia recognize the transformative potential of CBDCs and digital financial services, their approaches reflect their unique contexts and priorities. Bahrain’s proactive approach positions it as a leading hub for digital finance in the region, while Saudi Arabia maintains a cautious stance, leveraging its advanced payment infrastructure. As the global financial landscape continues to evolve, the experiences of Bahrain and Saudi Arabia serve as valuable lessons in navigating the intersection of tradition and innovation in the digital age.

Bahrain's Position as a Digital Finance Hub

Bahrain's proactive approach and vision for digital transformation position it as a leading hub for digital finance in the Middle East. The country's efforts to attract global fintech companies and foster innovation are expected to drive significant growth in its digital financial sector. Bahrain's success in this area can serve as a model for other countries looking to embrace digital financial services.

Saudi Arabia's Focus on Payment Infrastructure

Saudi Arabia's cautious approach, focusing on enhancing its existing payment infrastructure, reflects its unique priorities and context. The country's advanced payment systems provide a strong foundation for exploring the potential of CBDCs in wholesale markets and cross-border transactions. Saudi Arabia's experience highlights the importance of building on existing strengths while carefully considering the implications of new technologies.

Lessons for the Global Financial Landscape

The experiences of Bahrain and Saudi Arabia offer valuable lessons for the global financial landscape. As countries around the world explore the potential of CBDCs and digital financial services, the approaches of these two nations provide insights into the benefits and challenges of different strategies. By learning from Bahrain and Saudi Arabia, other countries can navigate the complexities of digital transformation and harness the potential of new financial technologies.

Conclusion

The panel discussion at the World Economic Forum in Riyadh highlighted the distinct approaches of Bahrain and Saudi Arabia towards the adoption of Central Bank Digital Currencies (CBDCs). Bahrain's proactive stance and vision for digital transformation position it as a leading hub for digital financial services in the Middle East. In contrast, Saudi Arabia's cautious approach focuses on enhancing its existing advanced payment infrastructure and exploring the potential of CBD