The central banks of the United Arab Emirates and India plan to start working together on a CBDC bridge pilot project that will provide direct interoperability of the state’s digital currencies to facilitate remittances and sales transactions.
The Reserve Bank of India (RBI) and the Central Bank of the United Arab Emirates (CBUAE) signed a Memorandum of Understanding (MoU) for financial services innovation. The joint efforts of the financial institutions will be aimed at creating a CBDC bridge.
The interoperability of the countries’ CBDCs will be a priority for cooperation. The central banks plan to develop the concept and launch a pilot CBDC bridge to facilitate remittances and sales transactions. Such a bridge will reduce costs, increase the efficiency of transactions, and strengthen economic ties between these countries.
In July 2022, remittances to India amounted to about $87 billion a year, approximately 2.75% of GDP. The United States accounts for about 23% and the UAE provides only about 18% of the total inflows. The Indian government views CBDCs as a tool to curtail the use of the U.S. dollar for bilateral trading.
It’s worth noting that central banks and finance department representatives from the two countries have been working together since late last year. In February 2023, they agreed to create a mechanism for bilateral trading in local currencies.
The digital rupee pilot project was launched in late 2022. About 55 million people from 13 cities across the country gained access to the CBDC, and at the end of February 2023, the RBI completed about 800,000 transactions worth $134 million under the pilot project. The UAE government plans to launch the digital dirham pilot as part of the financial infrastructure transformation (FIT) program by 2026.