- RBI and CBUAE have signed an MoU to enhance cooperation and promote innovation in financial products and services, including CBDCs.
- As part of the MoU, CBUAE and RBI will jointly conduct proof-of-concept (PoC) and pilot(s) of bilateral CBDC bridge to facilitate cross-border CBDC transactions of remittances and trade, which is expected to reduce transaction costs and increase efficiency of cross-border transactions.
- This collaboration marks a significant step towards exploring and testing the potential of CBDCs in cross-border transactions and provides for technical collaboration and knowledge sharing on matters related to Fintech and financial products and services.
- The CBUAE has been actively exploring and testing CBDCs with other central banks, while India’s CBDC pilot program has already circulated over $15.8 million worth of digital rupee across retail and wholesale sectors as of February 2023.
The Reserve Bank of India (RBI) and the Central Bank of the United Arab Emirates (CBUAE) have signed a Memorandum of Understanding (MoU) to enhance cooperation and promote innovation in financial products and services, including CBDC.
The MoU outlines a collaboration on various areas of FinTech, particularly Central Bank Digital Currencies (CBDCs) and interoperability between the CBDCs of the two central banks.
As part of the agreement, CBUAE and RBI will jointly conduct proof-of-concept (PoC) and pilot(s) of bilateral CBDC bridge to facilitate cross-border CBDC transactions of remittances and trade.
This initiative is expected to reduce transaction costs, increase efficiency of cross-border transactions, and further strengthen economic ties between India and UAE.
This move follows the growing interest in CBDCs, as more countries consider their own digital currencies. The collaboration between RBI and CBUAE marks a significant step towards exploring and testing the potential of CBDCs in cross-border transactions.
Furthermore, the MoU also provides for technical collaboration and knowledge sharing on matters related to Fintech and financial products and services. This collaboration is expected to benefit both countries in enhancing their financial systems and contributing to the growth of the overall global economy.
This MoU signifies a positive step towards a closer relationship between the two countries and their respective central banks. With the collaboration between RBI and CBUAE on FinTech and CBDCs, it is expected that the financial sectors in both countries will continue to develop and expand.
CBUAE has been at the forefront of exploring the potential use of CBDCs
The Central Bank of the United Arab Emirates (CBUAE) has been exploring the possibility of introducing a Central Bank Digital Currency (CBDC) since at least 2019. In December of that year, the CBUAE announced that it had joined a cross-border digital currency project with the Saudi Arabian Monetary Authority (SAMA). The project was aimed at exploring the potential use of CBDCs in facilitating cross-border payments between the two countries.
In January 2020, the CBUAE and SAMA announced that they had successfully completed a proof-of-concept (PoC) for a CBDC that could be used for cross-border payments between the two countries. The PoC used distributed ledger technology (DLT) to facilitate the exchange of the digital currency between the two central banks.
In September 2020, the CBUAE announced that it had launched a regulatory framework for Stored Value Facilities (SVFs), which are essentially digital wallets that can hold a variety of digital assets, including CBDCs. The framework is intended to support the development of the UAE’s fintech industry and promote innovation in digital financial services.
In December 2020, the CBUAE announced that it had partnered with the Digital Currency Institute of the People’s Bank of China to explore the potential use of CBDCs in cross-border payments between the two countries. The partnership was aimed at promoting the use of digital currencies in international trade and investment, and at strengthening economic and financial ties between the UAE and China.
Overall, the CBUAE has been at the forefront of exploring the potential use of CBDCs in cross-border payments and has been actively collaborating with other central banks and fintech firms to develop and test new CBDC systems.
India Launches CBDC Pilots, Over $15 Million Digital Rupee in Circulation
The history of Central Bank Digital Currency (CBDC) in India dates back to 2017 when the Reserve Bank of India (RBI) first formed a committee to explore the feasibility and desirability of introducing a digital version of the Indian rupee.
In April 2018, the RBI barred all regulated financial institutions from dealing with cryptocurrencies, citing concerns around consumer protection, market integrity, and money laundering risks. However, the central bank did not explicitly ban the use of blockchain technology and continued to explore the potential for CBDCs.
In January 2020, the RBI formed another committee to examine the potential of introducing a CBDC, and the committee submitted its report in July of the same year. The report stated that the RBI should consider launching a phased introduction of a CBDC, with the first phase focusing on wholesale and interbank transactions.
In January 2021, RBI revealed that it was exploring “the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalize it”.
In July 2021, RBI announced to launch a stakeholder consultation on CBDC to “reduce the use of cash and protect citizens from the volatility of cryptocurrencies.”
In October 2022, the RBI released a paper which mentioned that it was working on a phased implementation strategy for a CBDC, starting with a pilot program in the wholesale and interbank segments. The central bank also stated that it was exploring the possibility of launching a retail CBDC in the future.
In November 2022, the Reserve Bank of India announced the launch of the retail version of its digital currency on a test basis.
As of February 28, 2023, India’s CBDC pilot program has circulated more than $15.8 million worth of digital rupee across retail and wholesale sectors, as per Finance Minister Nirmala Sitharaman.