The Reserve Bank of India (RBI) and the Central Bank of the UAE (CBUAE) have announced that both entities will exchange ideas on the best ways to launch a central bank digital currency (CBDC).
The plans were contained in a memorandum of understanding (MoU) signed by both parties that will see both banking regulators conduct joint proof-of-concept and pilots concerning CBDCs. Besides researching CBDCs, the institutions will probe into “innovation in financial products and services.”
A core theme in the MoU is using CBDCs to solve the challenges associated with cross-border payments. Per the document, the central banks will seek to “reduce costs, increase the efficiency of cross-border transactions, and further economic ties between India and the UAE.”
Both countries have signaled plans to launch digital versions of their currencies, with pilots and public consultation underway to determine their viability. For India, the RBI is making progress with its retail CBDC pilot as it successfully onboarded nearly 50,000 users and 5,000 merchants in under 90 days.
RBI executives say there will be proceeding with caution in the coming months, but there are plans to increase the number of users by expanding the number of participating banks and cities. India’s dream of improving the state of international remittance recorded a win following the linking of its UPI domestic payment system with Singapore’s PayNow, to reduce transaction costs and settlement times between both countries.
The UAE has had its fair share of cross-border payment experiments, having participated in a study by the Bank for International Settlements (BIS). The study, termed Project mBridge, involved the central banks of China, Hong Kong, Thailand, and the UAE, with impressive levels of success.
Cross-border functionalities drive CBDCs
As central banks worldwide push on for CBDCs, the need to improve cross-border payments is a major driver amongst interested entities. Russia and China have indicated an interest in exploring international payments with CBDCs to reduce reliance on Western payment systems.
In a recent report, the International Monetary Fund (IMF) acknowledged the benefits of CBDCs, saying they could improve financial inclusivity but warned of the risks they posed to commercial banks. The BIS recently concluded Project Icebreaker involving the central banks of Sweden, Norway, and Israel which offered keen insights on how central banks can navigate the challenges of embedding cross-border functionalities in their CBDCs.