At present, many cross-border payments and settlements among Arab countries are carried out by correspondent banks, which act as agents for foreign financial institutions that do not have a local presence in a given country.
A tightening of anti-money laundering rules by US and European banks in the last several years has added to the cost of this practice, while some banks have quit the market to focus on more lucrative areas.
The board of the Arab Monetary Fund (AMF), which has 22 member countries ranging from Gulf states to Sudan and Morocco, approved the creation of an independent regional body to clear and settle payments among them, the AMF said on Sunday.
It did not specify when the system would go live, but AMF officials said earlier that they expected the system to be in operation by 2020.
The new body, supported by Arab central banks, will have capital of $100mn and be owned by the AMF.
"The aim of the entity is to promote the use of local currencies in intra-Arab payments clearing and settlement transactions, alongside main international currencies," the AMF said.