Foreign workers in the United Arab Emirates (via Shutterstock).
Technology,  Uncategorized

Saudi Arabia and UAE announce blockchain pilot program to cut remittances costs

The two countries are testing the Aber cryptocurrency to make it cheaper for foreign workers from impoverished nations to send money home

A pilot program by Saudi Arabia and the United Arab Emirates creating a digital cryptocurrency called Aber is an experiment aimed at seeing whether blockchain technology can reduce the high cost of remittances, according to a statement by the two wealthy Gulf nations’ financial authorities.

Remittances are funds sent home to family in developing nations by a worker in a wealthier foreign country. In December, the World Bank predicted that $528 billion will have been sent in 2018 to poorer countries. Remittances from Saudi Arabia in 2017 reportedly totalled $37.7 billion, and $44.7 billion from the UAE.

A number of blockchain companies, such as Ripple and Circle, have targeted the remittances market. One of the biggest problems remittances face are the high fees charged for sending them, which in 2018 averaged 6.9 percent on a $200 remittance, the World Bank said. They can be as high as 9.1 percent, according to The Economist. Reducing the average cost to send a remittance to 3 percent is a United Nations Sustainable Development Goal (SDG).

“Even with technological advances, remittances fees remain too high, double the SDG target of 3 percent,” said Mahmoud Mohieldin, senior vice president for the 2030 Development Agenda, United Nations Relations, and partnerships at the World Bank. “Opening up markets to competition and promoting the use of low-cost technologies will ease the burden on poorer customers.”

In December, the National Bank of Kuwait announced a partnership with Ripple to launch the NBK Direct Remit program using RippleNet blockchain technology in order to provide a “frictionless remittance experience and fast cross-border money transfer solutions.”

The Aber cryptocurrency is currently only being used in cross-border transactions between Saudi Arabia and the UAE, according to statement by the Saudi Arabian Monetary Authority (SAMA) and the United Arab Emirates Central Bank. The two institutions described it as a “proof-of-concept” of the feasibility of using the cryptocurrency for remittances, as well as assessing technical risks and determining if Aber can improve the process and reduce the cost of remittances.

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.