The Reserve Bank of India (RBI) and the Central Bank of the United Arab Emirates (UAE) announced on March 15 that they had signed a Memorandum of Understanding on cooperation and innovation in financial services.
The parties will pay particular attention to the interoperability of central bank digital currencies (CBDC) and develop an experimental and pilot program for the CBDC bridge to facilitate remittances and trade. They noted that such a bridge would reduce costs and increase the efficiency of transactions, as well as strengthen economic ties.
Representatives of Indian and UAE banks held talks in February on a rupee-dirham payment system using correspondent banks. This system has been developed over the course of a year. Countries currently have US dollars to settle payments.
Although remittances from the Gulf region decreased by 50% from 2016 to 2017, the UAE remains the main source of remittances to India, accounting for 17-18% of the total amount of about $87 billion as of July 2022. source for India before the COVID outbreak when it was pushed out by the United States.
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India and the UAE are likely investigating a retail CBDC to process remittances. India is currently running an internal digital rupee pilot project involving 50,000 users and 5,000 merchants. RBI also revealed in late February that it has completed about 800,000 transactions worth $134 million with its wholesale CBDCs and is testing the offline functionality of its CBDC.
India has also recently integrated its blockchain-free unified payment interface with Singapore’s PayNow system.
The UAE launched a nine-part financial transformation program and announced in February its intention to launch a CBDC for domestic and international use. Prior to this, Emirati banks participated in the mBridge pilot along with banks in Hong Kong, China and Thailand to use CBDC for cross-border transfers. In addition, the UAE expects that cryptocurrency “will play an important role in UAE trade going forward,” UAE Minister of State for Foreign Trade Thani Al Zeyoudi said at the World Economic Forum in January.
