The Reserve Bank of India on Wednesday said it has signed a memorandum of understanding (MoU) with the Central Bank of the UAE for promoting various emerging areas of fintech, especially central bank digital currency (CBDCs) cross-border transactions.
“Under the MoU, the two central banks will collaborate on various emerging areas of fintech, especially central bank digital currencies (CBDCs) and explore interoperability between the CBDCs of the CBUAE and the RBI,” the RBI said.
The two central banks will jointly conduct a proof-of-concept and pilot of a bilateral CBDC bridge, to facilitate cross-border CBDC transactions of remittances and trade. The bilateral engagement of testing a cross-border use case of CBDCs is expected to reduce costs, increase efficiency of cross-border transactions and further the economic ties between India and the UAE, the RBI said.
It also provides for technical collaboration and knowledge-sharing on matters related to fintech and financial products & services, it added.
The RBI launched pilot runs of CBDC in both wholesale and retail segments in 2022, in collaboration with several banks. A CBDC or e-rupee is a digital currency backed by a regulator as a legal tender. Globally, more than 60 central banks have reportedly expressed interest in CBDCs, with a few implementations already under pilot across both retail and wholesale categories.
“Many central banks are currently investigating risks, benefits and various designs of CBDC, mainly with a strong focus on domestic needs. Implications of CBDCs, even if only intended for domestic use, are expected to go beyond borders, making it crucial to coordinate work and find common ground among CBDCs of various jurisdictions. If coordinated successfully, the ‘clean slate’ presented by CBDCs may be leveraged to enhance cross-border payments,” the RBI had said in a concept note in October 2022.
