Based on the MoU, the two central banks will collaborate on various emerging areas of fintech, particularly central bank digital currency, and test interoperability between the digital currencies of the UAE Central Bank and the RBI, the Reserve Bank said.
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The two central banks will jointly conduct a proof-of-concept and pilot project of a bilateral CBDC to facilitate cross-border CBDC transactions for remittances and trade. The RBI also said that the bilateral engagement to test the cross-border use of CBDCs is expected to reduce the cost and increase the efficiency of cross-border transactions and further enhance economic ties between India and the UAE.
It provides an opportunity for technical collaboration and knowledge sharing in matters related to fintech, financial products and services, RBI added.
RBI has launched a pilot project of CBDC in wholesale and retail segments in 2022 in collaboration with several banks. CBDC or e-Rupee is a digital currency backed by a regulator as legal tender. Globally, more than 60 central banks have reportedly expressed interest in CBDCs. Some implementations have already been done under the pilot project introduced in the retail and wholesale sectors.
Many central banks are currently investigating the risks of CBDCs, the implications, benefits, and various designs of CBDCs. They mainly focus on domestic needs. These countries’ CBDCs are expected to cross borders, even if only for domestic use. This is critical to coordinate work and find common ground among CBDCs in different jurisdictions. If coordinated successfully, the ‘clean slate’ presented by CBDCs can be leveraged to enhance cross-border payments, the RBI said in a concept note in October 2022.
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The RBI aims to increase the number of customers in the CBDC pilot project to half a million by July this year from the current 90,000 customers. RBI introduced CBDC for wholesale and retail on November 1 and December 1, 2022. In the Union Budget presented in the Parliament on February 1, 2022, the Central Government announced that the digital currency will start from the financial year 2022-23. According to the RBI, CBDC aims to replace rather than replace existing forms of money. To provide users with an additional payment method without replacing existing payment systems
Introduced by CBDC.
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