During the recent “Belt and Road” International Cooperation Summit Forum in Beijing, a significant agreement was reached. It involved the Central Banks of China and the United Arab Emirates (UAE) in the domain of digital currencies.
The People’s Bank of China (PBOC) established a digital currency cooperation pact with the Central Bank of the United Arab Emirates. Simultaneously, the state-owned commercial Bank of China (BoC) engaged in a similar arrangement with the First Abu Dhabi Bank (FAB), the leading financial institution in the UAE.
This development signifies a progression of the ongoing partnership between the two central banks under the mBridge project, with a particular focus on cross-border financial transactions. Furthermore, this endeavor incorporates the Bank for International Settlements (BIS), along with the central banks of
During the Belt and Road announcement, references were made to possible future collaborations with the Bank of Indonesia. However, the full scope of such a partnership concerning digital currency remains somewhat unclear. It’s worth mentioning that Indonesia has been actively exploring the digital rupiah initiative.
Synergies Between Chinese Enterprises, Digital Yuan, and UAE’s Digital Currency Landscape
Shu-Pui Li, the UAE’s advisor on digital currency matters, emphasized the potential for collaboration. This is particularly significant given the Chinese enterprises’ inclination to use the eCNY (digital yuan) in their transactions. The digital yuan is widely accepted by UAE corporations.
This alignment can be attributed to the substantial presence of Chinese nationals in the UAE. It’s worth noting that around 300,000 Chinese expatriates are employed there. Additionally, nearly 60% of China’s trade with the Middle East and North Africa flows through the UAE.
Li also highlighted the potential of Central Bank Digital Currencies (CBDCs) in streamlining infrastructure payments for the Belt and Road initiative. This eliminates the necessity for intermediary financial institutions.
Such an approach not only lowers costs but also minimizes delays. It effectively tackles the concerns raised by the recent use of the Swift network for imposing sanctions.
Digital Currency Advancements: Bank of China and UAE’s Ambitious Initiatives
The Bank of China stands at the forefront of digital currency innovation. It is one of the few commercial banks with direct access to the digital yuan CBDC.
Furthermore, the UAE has been actively pursuing its goals in the digital currency domain. This was evident as the First Abu Dhabi Bank successfully concluded a trial of JPMorgan’s Coin Systems solution.
The UAE had previously unveiled comprehensive plans for developing CBDCs. These plans encompass retail, wholesale, and cross-border applications. The mBridge cross-border payment project is a prominent part of this extensive agenda. Additionally, there is a bilateral cross-border CBDC initiative with India.
Prototypes for both domestic and wholesale CBDCs are currently in progress. They are scheduled for completion by mid-2024. Notably, R3 plays a pivotal role in the domestic CBDC initiatives.