India and UAE sign agreement to develop digital currencies

The UAE Central Bank and the Reserve Bank of India have signed an agreement to work together and improve cooperation and innovation in financial products and services. This partnership is particularly significant as the two banks plan to collaborate on exploring emerging FinTech areas, including Central Bank Digital Currencies (CBDCs).

For the uninitiated, CBDC is a digital version of regular fiat currency that’s issued and supported by a country’s central bank. The key difference between CBDC and cryptocurrencies is that CBDC is centralised and closely monitored by the government. CBDC is intended to work like traditional fiat money but with blockchain tech powering it.

The agreement involves both banks partnering to investigate interoperability between their CBDCs, conducting proof-of-concept and pilots for a bilateral CBDC bridge to facilitate cross-border CBDC transactions for remittances and trade. With cryptocurrencies gaining popularity, the two banks aim to develop digital currencies and complement cash with digital central bank money.

You can watch the video by Coin Bureau below to understand the differences between CBDCs and cryptocurrencies.

Moreover, the UAE Central Bank launched a program last month to expedite digital transformation in the financial services sector, including initiatives that cover open finance and a new digital currency. The new CBDC will be utilised for both domestic and cross-border payments, resolving inefficiencies and problems of cross-border payments and driving innovation for domestic payments.

Besides exploring CBDCs, the two banks plan to engage in technical collaboration and knowledge-sharing on matters related to FinTech and financial products and services. This collaboration aims to improve the efficiency and transparency of cross-border transactions, fostering economic ties between India and the UAE.

India has been conducting CBDC pilots since 2022 and plans to launch a full-scale retail CBDC by the end of 2023. The country has been testing a retail CBDC that has reached over 50,000 customers and 10,000 merchants in 15 cities. According to Boston Consulting Group, CBDCs would continue to gain momentum as regulators tailor them to complement cash with digital central bank money.