The Central Bank of India (RBI) and his Emirati counterpart (UAE) recently concluded an agreement to stimulate innovation and cooperation in the field of financial services. Both entities will focus on the interoperability of digital currencies issued by central banks (CBDC), by setting up a proof of concept as well as an experimental program for a CBDC bridge, with the aim of simplifying money transfers and commercial transactions. This project should generate a cost reductionimproved efficiency of financial operations and a strengthening of economic relations between the two nations.
As part of this alliance, India and the UAE are reportedly considering using a CBDC retail-oriented to manage remittances. Currently, India is piloting a domestic digital rupee program that has 50,000 users and 5,000 participating merchants. In addition, the RBI has carried out nearly 800,000 transactions worth $134 million with its CBDCs intended for wholesale transactions and is currently performing offline functionality testing.
Representatives of Indian and Emirati banking institutions also discussed the issue of a payment system based on rupees and dirhams, using correspondent banks and which has been in development for a year. Although US dollars are still used to settle payments between the two countries, the UAE remains a major source of remittances to Indiarepresenting between 17 and 18% of the total of around $87 billion in July 2022.
The UAE has also initiated a nine-step financial transformation program, including the creation of a CBDC for local and international use. Emirati banking institutions have already taken part in the experimental mBridge project in collaboration with banks from Hong Kong, China and Thailand, aiming to use CBDCs for cross-border transfers. UAE anticipates prominent role of cryptocurrencies in future tradeas the Emirati Minister of State for Foreign Trade mentioned at the World Economic Forum in January.
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