The UAE Central Bank and the Reserve Bank of India on Wednesday signed an initial agreement to boost co-operation and enable innovation in financial products and services.
Through the agreement, which was signed in Abu Dhabi, the two banking regulators will collaborate on various emerging areas of FinTech, including Central Bank Digital Currencies, and will explore interoperability between their CBDCs, the UAE Central Bank said in a statement.
As per the agreement, they will conduct proof-of-concept and pilots of a bilateral CBDC bridge to enable cross-border CBDC transactions of remittances and trade, it added.
Central banks are looking into the development of digital currencies amid the growing popularity of cryptocurrencies as an asset class among retail and institutional investors.
Last month, the UAE Central Bank announced a programme to accelerate the digital transformation in the financial services sector, with initiatives spanning open finance and a new digital currency.
The new CBDC will be used for both cross-border payments and domestic usage to “address the problems and inefficiency of cross-border payments and help drive innovation for domestic payments, respectively”, the regulator said at the time.
The UAE Central Bank's latest agreement with the Reserve Bank of India also includes technical collaboration and knowledge-sharing on matters related to FinTech and financial products and services.
“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 [the] UAE,” the statement said.
Last year, India's central bank unveiled its first pilot programme for the e-rupee, allowing some banks to use the digital rupee to settle secondary market transactions in government bonds. The bank plans to start testing the retail uses of the digital form of the Indian rupee.
The rapid development of CBDCs could help to boost financial inclusion and stability, according to Fitch Ratings.
CBDCs will continue to gain momentum as regulators keep tailoring them to complement cash with digital central bank money, Boston Consulting Group said in a recent report.
Revenue from the payments industry in the UAE is expected to grow to $18.7 billion by 2031, driven by the young and tech-savvy population in the country, the report added.
The Bank of England and the Treasury have also set out a plan to introduce a new central bank currency, including a new state-backed digital pound that could be launched this decade.
Oman's central bank is also developing a digital currency and open banking services, the country's state news agency reported last year.