2024 Year End Review of Saudi Digital Currency Regulations

The Saudi Central Bank (SAMA) has consistently cautioned against engaging in virtual currency trading, highlighting significant risks and the absence of regulatory oversight. To date, cryptocurrencies are neither recognized as legal tender nor sanctioned as acceptable forms of payment in Saudi Arabia. Furthermore, SAMA clarified that no entities or individuals are authorized to facilitate cryptocurrency-related activities under the Kingdom’s regulatory framework. However, things are about to change in 2025.

On September 5, 2024 the Saudi Central Bank (SAMA) appointed a Crypto Chief, Mohsen Alzahrani, who is not a small name in the Saudi fintech field. He has his own plethora of achievements in this field. For example, back in 2005, Alzahrani played a pivotal role in the launch of the SAMA-established SADAD Payments System, managing onboarding processes before being promoted to Business Development Director. He later led the SAMA Innovation Center, overseeing blockchain and digital currency projects. Subsequently, Alzahrani transitioned to strategy leadership at Saudi Payments, a SAMA-owned entity that serves as the successor to SADAD, operating an instant payments system integral to the Kingdom's financial ecosystem.

Judging by the achievements listed above, it's clear that a highly skilled and passionate expert with a strong focus on cryptocurrency in Saudi Arabia will be leading the charge in 2025. His experience, particularly in overseeing blockchain and digital currency projects at SAMA, signals that this is just the beginning of a larger push towards digital finance in the Kingdom.

But it gets better...

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According to an article published by the credible website Imarcgroup, talking about the future of crypto currency in the Kingdom:

The cryptocurrency market in Saudi Arabia is experiencing a surge in institutional investments, as financial institutes are currently exploring digital assets for diversifying their portfolio. The government’s proactive approach regarding blockchain technology is appealing private equity and venture capital investments into cryptocurrency projects.

Moreover, fintech organization and banks are actively incorporating blockchain platforms to improve transaction efficiency as well as security. For instance, in June 2024, the Saudi Central Bank collaborated with the UAE, China, Thailand, and Hong Kong banks for mBridge project, to evaluate the viability of central bank digital currencies using the blockchain technology of the project. In addition, this escalating institutional interest is supporting the market in maintaining its integrating as well as escalating its expansion, establishing cryptocurrency as a feasible substitutional option in Saudi Arabia’s dynamic financial landscape.

Project ABER One of the Biggest Digital Currency Attempts in the History of the Saudi Kingdom

In 2019, the Central Bank of the United Arab Emirates (UAECB) and the Saudi Arabian Monetary Authority (SAMA) cooperated with other four participating commercial banks in the two countries and introduced a digital currency called Aber. This innovative project represents a collaborative effort to streamline cross-border transactions between the two nations.

Unlike cryptocurrencies, Aber is not decentralized; it is directly backed by the fiat currencies of both Saudi Arabia (SAR) and the UAE (AED). The primary objective of Aber is to test the efficiency and security of distributed ledger technology (DLT) in facilitating seamless interbank settlements, reinforcing financial stability and reducing costs in cross-border payment systems.

In a report published by the central bank, they said about the project “Project Aber was an initiative launched by the central banks of Saudi Arabia and United Arab Emirates to explore the viability of a single dual-issued digital currency as an instrument of domestic and cross-border settlement between the two countries”.

The project was later described in the report conclusion, “The project was successful in achieving its key objectives which include using a new DLT based solution for real time cross-border interbank payments between commercial banks without the need to maintain and reconcile Nostro accounts with each other. This promises to address the inefficiency and costs that are inherent in existing cross-border payment mechanisms”.

So, although the project is not a cryptocurrency project, it is a huge step in the general idea and usage of digital payments in the Kingdom and the entire GCC.

Islamic Finance Permits Partnerships with Halal Businesses

The Islamic law (sharia) in itself has its own Islamic banking system, the central principal of which is the prohibition of interest (riba). This is applied by Islamic banks which are common in Muslim countries.

The Islamic banking system has its own commercial regulations that are significantly different than the rest of the other commercial regulation in most of the other banking systems around the world.

As it forbids the use of interest in the commercial system of the state and for individual commercial activities such as business or personal loans and strongly forbids financing any unethical or haram commercial activities. For example: strip clubs, pornography, alcoholic beverages and bars, as well as sports betting and casino gambling.

This of course differs immensely from the worldwide secular banking system, which often allows (with some restrictions) the financing of what Muslims and many Christians consider sinful activities.

That said it doesn’t mean that Islamic banking system is closed in on itself and forbids most commercial activities as it encourages other activities that doesn’t involve collecting interest or financing haram businesses for example, engaging in partnerships (Mudarabah, Musharrakah) is totally permissible, where the profit or loss of a business is equally shared among the participants (stockholders, policyholders, etc.) This has some loose similarities to the German banks that financed Germany's heralded mittelstand or family-owned manufacturing--just without charging interest.

There are many other commercial activities in Islamic finance, such as investments in permissible halal stocks (e.g. stocks of a real estate business which are popular in KSA and the UAE) or other businesses, such as halal foods and meatpacking. The same goes for investment in long-term assets or leaseholds, such as farms, which is expected to be a major area of Gulf investment in Kazakhstan and postwar Ukraine and Russia. There is already significant GCC investment in the livestock and halal meatpacking industries of the Russian Caucasus.

Of course this is not a complete summary of all commercial activities that are supported by Islamic banking or in Islamic banks.

See also: Bitcoin and Islamic Banking: An Overview

Islamic Banks and Cryptocurrency

Muslim scholars have spent several years researching and debating whether cryptocurrency is allowed in Islamic law. Until recently the matter was still in question and in research other scholars have permitted its use under certain conditions (see above link). However even those scholars who have said crypto can be permissible are still advising caution.

All in all, Islamic law doesn’t specifically forbid the use of cryptocurrency. it merely defines how it should be made and the matter is still under advisement. However, with the Islamic law not specifically forbidding the use of crypto money it can be inferred that in the near future scholars will find a way to apply it in a way that is in line of the sharia law to make use of their immense benefits and with the Applying of the ABER project which is the most close idea of the crypto and digital currency to the sharia law the future for the cryptocurrency under Islamic provision looks very promising.

The Saudi E-Riyal

In regards to the E-Riyal, the Bank for International Settlements (BIS) has confirmed that the Saudi Central Bank will be a participant of the EM Project, which we mentioned earlier in this article.

This is not exactly a surprising step, as 90% of the money in the circulation of today is digital and not actual paper bills. This also relates to the UAE attempting to launch its own digital Dirham (eAED).

Other supranational entities, such as the EU, have also launched the eEuro and Russia and China have their digiruble (eRUB) and digiYuan (eRMB), respectively. It's obvious that in 2025, more initiatives to convert the currency of nation states and introduce fully digital variants as legal tender are coming.