Central Bank of UAE, Reserve Bank of India to Support Innovation in Financial Services

The Central Bank of the United Arab Emirates (CBUAE) and the Reserve Bank of India (RBI) signed recently a Memorandum of Understanding (MoU) in Abu Dhabi, United Arab Emirates to enhance cooperation and jointly enable innovation in financial products and services.

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 CBUAE and RBI.”

CBUAE and RBI will jointly “conduct proof-of-concept (PoC) and pilot(s) of bilateral CBDC bridge to facilitate cross-border CBDC transactions of remittances and trade.”

The MoU also “includes technical collaboration and knowledge sharing on matters related to Fintech and financial products and services, such as emerging trends, regulations and policies.”

The MoU is expected “to foster joint experimentation with regard to CBDCs and facilitate other digital innovation initiatives between the CBUAE and the RBI.”

This bilateral engagement of testing 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 UAE.”

CBDC projects are increasingly being launched across the globe.

Swift announced further progress on its experimental solution for interlinking Central Bank Digital Currencies (CBDCs), reporting that 18 central and commercial banks found “clear potential and value” in the API-based CBDC connector after a comprehensive review.

The cooperative “published the findings of the 12-week period of collaborative sandbox testing, in which almost 5,000 transactions were simulated between two different blockchain networks and with existing fiat-based payment systems.”

Central and commercial bank participants “expressed strong support for the solution’s continued development, noting that it enabled seamless exchange of CBDCs, even those built on different platforms.”

Interoperability is “a key strategic focus for Swift, and a key challenge for the financial industry as digital currencies develop.”

According to the Atlantic Council, more than 110 countries are currently “exploring CBDCs, with almost a quarter expecting to launch within the next one or two years.”

However, most are “focusing primarily on domestic usage, which could lead to a fragmented landscape consisting of ‘digital islands’.”

Swift announced in October that it had “developed a solution to enable CBDCs to move between DLT-based and fiat-based systems using existing financial infrastructure.”

The sandbox testing was “set up so that central and commercial banks could experiment with the solution to validate its effectiveness and share insight to guide its development.”

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