Summary: The Fourth Industrial Revolution impacts on every country in the Arab world but policymaking in response to new fintech like blockchain and cryptocurrencies varies widely.
Blockchain is one of the most exciting new technologies of the Fourth Industrial Revolution, promising transformations of entire systems of production, management, and governance. The sectors expected to be impacted most include financial services, healthcare, online retail, transportation and education, and the Arab world is no exception, although so far the most tangible impact of blockchain has been on people living in rural areas and refugee camps. Since last year the World Food Programme has been distributing food vouchers at a camp in Jordan using the Ethereum blockchain and the company behind blockchain-based health records in Jordan is now planning to expand into Syria, Iraq, Egypt and Djibouti.
The official response of Arab regimes to these new financial technologies has been cautious, but as the popularity of cryptocurrencies like bitcoin has soared, and with many residents in Arab countries already buying virtual currencies through online exchanges, they have been under increasing pressure to do something. Most have now issued a notice to the citizenry warning of the pitfalls of investing in cryptocurrencies and highlighting the difference between currencies which are officially backed by the state and cryptocurrencies, which are not. Some central banks and finance ministries have gone further, warning that cryptocurrencies create opportunities for illegal activities, such as money laundering and terrorism.
Though they issue warnings Arab rulers are also attracted by the new fintech and the benefits it promises, even if, as in the West, many issues surrounding cryptocurrencies remain unresolved. No Arab government for example has addressed yet (although Israel has) how to categorize crypto-related business activities for the purposes of taxation.
Naturally there are no shortage of religious opinions online. Many Islamic commentators reject cryptocurrencies for lacking intrinsic value as well as for their intangibility, volatility and non convertibility. Others argue the morality of financial transactions is more important than its form and some companies already claim to trade cryptocurrencies in compliance with Sharia.
In April a conference attended by senior Islamic scholars in Manama reached no conclusion about blockchain and issued no guidance. A Journal of Islamic Banking and Finance article concludes “Bitcoin or a similar system might be a more appropriate medium of exchange in Islamic Banking and Finance than riba-backed central bank fiat currency, especially among the unbanked and in small-scale cross-border trade.”
Cryptocurrency legislation varies substantially across the region and while some Arab countries have explicitly allowed its use and trade, others have banned or restricted it. Much of it is still undefined or changing, and variations on terminology muddy the picture e.g. virtual currency (Algeria, Jordan, Libya, Morocco, Saudi, UAE), payment token (UAE), digital currency (Oman, Saudi, Tunisia), cyber currency (Lebanon), electronic currency (Lebanon, Kuwait).
Only one Arab country so far – Tunisia – has issued its own digital currency, the “eDinar” issued by the Tunisian Postal Service last year, since when it has enabled around 700,000 unbanked Tunisians to participate economically, making instant payments with almost no fees at all. Tunisia Economic City, which claims to be the largest smart city project on the Mediterranean, has plans to apply blockchain as its settlement currency and service platform throughout.
But in several cases Arab governments have issued apparently contradictory information. In January 2017 for example the UAE Central Bank released a paper stating that all transactions in “virtual currencies” are banned, a warning since reiterated by the Governor. Yet in February Dubai gold trader Regal RA DMCC became the first company in the Middle East to get a license to trade cryptocurrencies and dozens of other Dubai-based tech start-ups are working on projects related to bitcoin creation and exchange.
Despite the ban the UAE is often ranked one of the most crypto-friendly countries globally and the most advanced in the Arab world. Smart Dubai is planning blockchain applications in everything from renting and buying property, to managing the lifecycle of vehicles and obtaining commercial business licenses. In August the Dubai International Financial Centre Courts announced the creation of the world’s first Court of the Blockchain and by 2021 the UAE aims to put 50% of government transactions on blockchain platforms.
Saudi Arabia’s position is also unclear. In July 2017 SAMA issued a warning about cryptocurrencies – but stopped short of declaring an outright ban – since when more official warnings have been issued. Yet in October last year SAMA announced a pilot project to issue its own digital currency for transactions between banks which the UAE Central Bank has said will be accepted in transactions between the two countries. At the first-ever Saudi blockchain event in Riyadh in April attendees discussed blockchain-backed “smart contracts” which proponents claim will open up new opportunities in the energy sector like peer-to-peer energy trading.
Egypt also has a nuanced position on cryptocurrencies. The Central Bank has issued repeated warnings about trading them and Dar al-Ifta issued a fatwa classifying them as haram and damaging to national security. Yet in August 2017 Egypt’s first private cryptocurrency exchange launched, allowing Egyptians direct access to cryptocurrency for the first time, and in April the National Bank of Egypt joined a consortium of financial institutions to explore commercial applications for blockchain. Later this year the ICT Ministry will reportedly launch a government blockchain project (hopefully not named by the same person who named the new Egyptian government backed social media platform EgFace).
According to Citizen Lab, an interdisciplinary laboratory at the University of Toronto, the Egyptian government, or entities linked to it, has also been active in the cryptocurrency sector hijacking citizens’ internet connections to mine cryptocurrency secretly “en masse”, as well as to block access to dozens of human rights, political, and news websites.
Besides the UAE, cryptocurrencies have been banned outright in Algeria, Iraq, Morocco, and Libya. Jordan has warned the public against the use of bitcoin. Even where a ban is in place internet postings suggest people often flout the law. Despite the ban in Morocco a blockchain summit was held there last month and a US private equity firm is planning a controversial project to build a wind farm to mine bitcoin in the occupied Western Sahara.
Kuwait does not recognize cryptocurrencies for official commercial transactions and prohibits the banking sector and state-controlled companies from trading them. Yet in January 2018 the CBK announced it would issue an e-currency, which it distinguished from a virtual currency, and in July a Kuwaiti financial firm announced the first ever blockchain-powered transaction in the country.
In Lebanon the Banque du Liban issued warnings about the dangers of cryptocurrencies and then last year announced it would launch its own. Media reports suggest some small businesses in Lebanon already accept bitcoin.
Bahrain and Qatar both bar their citizens from engaging in any kind of activities involving cryptocurrencies locally but allow them to do so outside their borders. Qatar has its first Blockchain conference in October. Financial regulators from Abu Dhabi, Bahrain and Dubai are among a network of regulators collaborating with the the UK Financial Conduct Authority to increase regulatory cooperation and explore policy issues arising from fintech.
The Central Bank of Oman issued a press release in December 2017 declaring there are no policies or guidelines to regulate digital currencies.