CBUAE unveils Central Bank Digital Currency strategy

The Central Bank of UAE (CBUAE) has partnered with G42 Cloud and R3 to launch its Central Bank Digital Currency (CBDC) strategy, one of the nine initiatives of the central bank’s Financial Infrastructure Transformation (FIT) Programme, according to WAM.

The UAE central bank said G42 Cloud and R3 are the infrastructure and technology providers, respectively. “CBDC is one of the initiatives as part of the CBUAE’s FIT programme, which will further position and solidify the UAE as a leading global financial hub. The launch of our CBDC strategy marks a key step in the evolution of money and payments in the country,” said Khaled Mohamed Balama, the governor of the CBUAE.

The first phase of the initiative is expected to complete over the next 12 to 15 months. It comprises three major pillars; the soft launch of mBridge to facilitate real-value cross-border CBDC transactions for international trade settlement, proof-of-concept work for bilateral CBDC bridges with India and finally proof-of-concept work for domestic CBDC issuance covering wholesale and retail usage.

The UAE central bank and the Reserve Bank of India will collaborate on various emerging areas of fintech, especially central bank digital currencies while exploring interoperability between the CBDCs of the two central banks.

The central banks will jointly conduct proof-of-concept and pilot(s) of a bilateral CBDC bridge to facilitate cross-border payments and remittances.

CBUAE Central Bank Digital Currency strategy launched#WamNews https://t.co/X3vE8SHMGj pic.twitter.com/vAM0mc6JMe

— WAM English (@WAMNEWS_ENG) March 23, 2023

The strategy is expected to address the pain points of domestic and cross-border payments, enhance financial inclusion and move towards a cashless society as part of the country’s digital transformation.

“CBDC will accelerate our digitalisation journey and promote financial inclusion. We look forward to exploring the opportunities that CBDC will bring to the wider economy and society,” Balama added.

CBDC is expected to further bolster the UAE’s payment infrastructure, provide additional robust payment channels and ensure a resilient and reliable financial system.

The CBUAE aims to ensure the readiness of the UAE to integrate the payment infrastructures with the future potential tokenisation world, the tokenisation of financial and non-financial activities.

CBDC is a risk-free form of digital money issued and guaranteed by the central bank and serves as a secure, cost-effective and efficient form of payment and a store of value.

CBUAE digital strategy

Meanwhile, building on the success of several CBDC initiatives including Project Aber with the Saudi Central Bank (SAMA) and the “mBridge” Project with the Hong Kong Monetary Authority, the Bank of Thailand, the Digital Currency Institute of the People’s Bank of China and the Bank for International Settlements last year, the CBUAE is entering the next phase of central bank digital currency journey by implementing the CBDC initiative.

Read: Central banks of UAE, India sign agreement to boost collaboration

The Aber pilot project in 2020 confirmed the possibility of using a digital currency issued by central banks to settle cross borders payments. The apex lender, which completed the mbridge project in October 2022, said the project demonstrated faster, cost-effective and secure cross-border monetary settlements using CBDC.

The pilot was part of Project mBridge, which experiments with cross-border payments using a common platform based on distributed ledger technology which central banks can use to issue and exchange their CBDCs.

According to the Atlantic Council, around 100 countries, representing 95 per cent of the world’s GDP, are using or considering adopting CBDCs. The US-based think tank said all G7 economies have now moved into the development stage of a CBDC as of December 2022 and more than 20 countries are expected to take significant steps towards piloting a CBDC in 2023 including Australia, Thailand, Brazil, India, South Korea and Russia.

Read: Central Banks can shape the future of digital finance

Central banks around the world have been racing to develop CBDCs as they seek to provide an alternative to cryptocurrencies, but are grappling with technological complexities.