The bridge would be the second for the UAE, whose banks successfully participated in the mBridge project last year with Hong Kong, China and Thailand.
The Reserve Bank of India (RBI) and Central Bank of the United Arab Emirates (UAE) announced on March 15 that they had signed a memorandum of understanding on collaboration and innovation in financial services.
The parties will particularly concentrate on central bank digital currency (CBDC) interoperability and will develop a proof-of-concept and pilot program for a CBDC bridge to facilitate remittances and trade. Such a bridge would reduce costs and increase efficiency of transactions, they noted, and strengthen economic ties.
Indian and UAE banking officials held talks in February on a rupee-dirham payment system using correspondent banks. That system has been under development for a year. The countries currently U.S. dollars to settle payments.
Walking the talk ! @RBI and UAE Central Bank signed a MoU for innovation in financial products. Development and interoperability in the field of Central Bank Digital Currencies (CBDCs) closer than ever. @DasShaktikanta @MEAIndia @Economyae @FinMinIndia @nsitharaman #FilePic pic.twitter.com/GDHC8Z9HdM
— India in UAE (@IndembAbuDhabi) March 15, 2023
Although remittances from the Gulf region are down 50% from 2016-2017, the UAE remains a major source of remittances to India, accounting for 17-18% of the total of around $87 billion, as of July 2022. The UAE was the top source for India until the COVID outbreak, when it was displaced by the United States.
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India and the UAE would presumably investigate a retail CBDC to handle remittances. India currently has a domestic digital rupee pilot project with 50,000 users and 5,000 participating merchants. The RBI also reported in late February that it had completed around 800,000 transactions worth $134 million with its wholesale CBDCs, and it has been testing its CBDC’s offline functionality.
India also recently integrated its non-blockchain unified payments interface with Singapore’s PayNow system.
The UAE launched a nine-part financial transformation program and announced its intention to launch a CBDC for domestic and cross-border us in February. Even before that, Emirati banks had participated in the mBridge pilot project, along with banks in Hong Kong, China and Thailand to use CBDC for cross-border transfers. In addition, the UAE expects cryptocurrency to “play a major role for UAE trade going forward,” UAE minister of state for foreign trade Thani Al-Zeyoudi said in January at the World Economic Forum.