By issuing a CBDC, the UAE hoped to address its cross-border payment challenges and ‘drive innovation for domestic payments’.
India and the United Arab Emirates have agreed to collaborate on an interoperable CBDC. This will facilitate cross-border remittances and sales transactions. The collaboration could lead to other such partnerships between countries and spur further adoption of digital currencies.
According to the press release, the Reserve Bank of India and the Central Bank of the United Arab Emirates signed a memorandum of understanding that allows the two apex banks to develop and pilot-test interoperable CBDCs. The banks will jointly conduct a proof-of-concept (PoC) of a bilateral CBDC bridge. They will also launch a joint pilot test across the two nations.
Previously, the RBI launched the first pilot of its retail CBDC within a closed user group in selected locations within the country. The test has reached over 10,000 customers and 50,000 customers across 15 cities. RBI plans to follow up by launching a digital currency before the year is over.
For the UAE, it introduced the FIT program, which includes the issuance of a CBDC as the first stage. By issuing a CBDC, the country hoped to address its cross-border payment challenges and ‘drive innovation for domestic payments’.
Past Stance Doesn’t Inspire Confidence in Interoperable CBDCs
There are concerns that India’s stance towards digital assets may influence the outcome of the collaboration negatively. In the past, India has been strict with the asset class. Apart from pushing for an outright ban on cryptocurrencies, the government imposed a 30% tax on crypto profits. It also imposed a 1% TDS tax on the sale of crypto assets, forcing many traders out of the market.
Again, the bank released its concept notes for cryptocurrencies, leading to criticism from local crypto firms. The apex bank was accused of plotting to replace private digital currencies with a government-controlled asset.
In its defense, the RBI claimed it is in the purview of the government to provide risk-free assets for citizens, which is not possible using private assets. One executive labeled the move as outdated and orthodox and indicative of a limited understanding of crypto assets.