Yesterday, CoinDesk published an article I wrote on the blockchain policy of the United Arab Emirates (UAE). The main point was that the new technology can not only bring additional efficiencies and cost savings to bank operations, but also future-proof sectors against shifting geo-economic conditions. The blockchain can help entire regions maintain their global relevance.
What triggered that thought process was the news that the National Bank of Abu Dhabi (NBAD) had implemented a blockchain-based cross-border payments service. Note that the report did not say “was testing”. The project is now live.
What I couldn’t cover in the article (it wasn’t central to my point) was the following tangent: The NBAD – the second largest lender in the region – is merging with First Gulf Bank, the third largest bank by assets in the UAE.
The regulators have yet to weigh in, although the market does not expect them to block the deal. Assuming the proposal goes ahead, it will create the largest bank in the region in terms of lending, and for comparison, it will have a larger market cap than Deutsche Bank (which admittedly is a lot lower than it was, but that’s a different topic).
This puts even more power behind the blockchain project.
What’s more, the new entity will have branches and/or subsidiaries in 19 different countries.
Considering that 90% of the UAE’s population are expats, this gives the bank’s geographical expansion a new twist. The vast majority of the region’s residents are from somewhere else… which probably has a NBAD branch or subsidiary. That’s a lot of captive business, and a lot of cross-border payments.
Where do they go to?
A report in Gulf News today reveals that the largest receiver of remittances from the UAE in 2016 was India (again), and that, in spite of an economic slowdown, the amount went up by 10%.
This jump apparently is in part attributed to the Indian government’s recall of 80% of the notes in circulation – the ensuing economic disruption and loss due to inability to exchange notes increased the need for money from family members working abroad. In addition, the rupee declined significantly against the US$ – since the UAE dirham is pegged to the US$, the value of remittances went up.
Even if the bump is temporary, it does highlight the impact that blockchain technology can have on an important part of the region’s financial landscape. (It is important to note, as I pointed out in the CoinDesk article, that not all of the bank’s remittance services will be on the blockchain. The bank is incorporating this new process into its current offerings. But it’s a start, and it has potential.)
The increase also points to the growing prominence of financial services in the UAE economy, potentially replacing oil revenues as the motor for growth. With blockchain services adding momentum, the region could be well on the way to consolidating is position as a financial and technology hub. Throw in the fortuitous time zone in between Europe and Asia, and easy access to and from just about anywhere in the world, and we could soon witness a fundamental shift in centres of economic power.