The Reserve Bank of India (RBI) has recently signed a memorandum of understanding (MoU) with the UAE’s central bank to promote emerging areas of fintech, particularly central bank digital currency (CBDCs) cross-border transactions, reported Financial Express.
“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 report quoted the RBI as saying.
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, it said.
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, as per the report.
It also provides for technical collaboration and knowledge-sharing on matters related to fintech and financial products & services, it added.
Last year, RBI launched pilot runs of CBDC in both wholesale and retail segments in collaboration with a number of banks. A CBDC or e-rupee is a digital currency backed by a regulator as a legal tender.
Over 60 central banks globally 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.