India-UAE Launch CBDC Bridge for Cross-Border Payments

The formal agreement, signed in Abu Dhabi, establishes a framework for the RBI and CBUAE to conduct joint proof-of-concept (PoC) and pilot programs. The core objective is to test the technical and operational feasibility of a bilateral CBDC bridge specifically designed to facilitate cross-border payments. The Memorandum of Understanding explicitly states its aim to ‘enable cross-border CBDC transactions of remittances and trade,’ signaling a direct application to real-world economic flows.

Beyond the immediate testing of the CBDC bridge, the MoU facilitates broader technological cooperation and knowledge exchange on issues involving fintech and financial products and services. This indicates a long-term commitment to mutual innovation in the digital finance space, positioning both central banks at the forefront of the global shift toward sovereign digital currencies.

The focus on remittances is of particular strategic importance. The RBI’s own release highlighted that the UAE is India’s second-largest source of inbound remittances from migrant workers, trailing only the United States. This high-volume corridor makes it an ideal testing ground for a CBDC solution that promises to lower transaction costs and improve the speed and transparency of cross-border money transfers.

The initiative is also set to streamline trade payments between the two nations. By creating a direct, bilateral bridge between their respective digital currencies, the RBI and CBUAE anticipate significant improvements in the efficiency of cross-border transactions. This enhanced financial infrastructure is expected to strengthen the economic relations between India and the UAE, making commerce smoother and more integrated.

This bilateral project builds upon significant independent progress made by both countries in the CBDC domain. India has advanced rapidly with its Digital Rupee initiative, launching both wholesale and retail pilots in November 2022. The project has gained notable traction, with Reliance Retail, India’s largest retail chain, recently launching the first in-store adoption of the RBI’s CBDC at its Freshpik grocery store, demonstrating real-world retail utility.

Similarly, the UAE has its own comprehensive digital currency strategy. In February, the CBUAE unveiled a new initiative to accelerate the digital transformation of its financial services sector. This strategy includes nine key projects, one of which is the specific creation of a central bank digital currency, showing a clear and parallel commitment to digital currency innovation.

While the central banks have confirmed the testing of a bilateral bridge, the provided text notes it remains ambiguous whether the upcoming PoC and pilots will involve wholesale CBDCs, retail CBDCs, or a combination of both. This leaves room for a phased approach, potentially starting with wholesale banking channels before expanding to retail user applications.