China-UAE Digital Currency Collaboration Gains Momentum

During the third “Belt and Road” International Cooperation Summit Forum held in Beijing this week, the Central Banks of China and the United Arab Emirates (UAE) recently signed memoranda of understanding (MoUs) regarding digital currencies.

The People’s Bank of China (PBOC) and the Central Bank of the United Arab Emirates have signed a memorandum of understanding to strengthen digital currency cooperation.

The state-owned Commercial Bank of China (BoC) and the largest bank in the UAE, First Abu Dhabi Bank (FAB), have signed a digital currency cooperation agreement.

This initiative focuses on cross-border payments and builds on the partnership between the two central banks within the mBridge project.

The Bank for International Settlements (BIS) and the central banks of Thailand and Hong Kong are also involved in the mBridge initiative.

The Belt and Road announcement alluded to additional collaboration with the Bank of Indonesia, although it is unclear whether this pertains to digital currency. Indonesia has been investigating its digital rupiah program actively.

The UAE’s advisor on digital currency, Shu-Pui Li, has emphasized the potential for collaboration, especially in light of Chinese companies’ preference for using the eCNY (digital yuan) for payments, a widely accepted currency by UAE businesses.

This synergy can be attributed to the many Chinese nationals employed in the UAE, with approximately 300,000 Chinese workers.

Almost sixty percent of Chinese trade with the Middle East and North Africa passes through the UAE.

Li also discussed the ramifications of the Belt and Road initiative, proposing that Central Bank Digital Currencies (CBDCs) could be used to pay for infrastructure without intermediary banks.

This method reduces expenses and delays, which is especially pertinent given the recent use of the Swift network for sanctions purposes.

As one of the few commercial banks with direct access to the digital yuan CBDC, the Bank of China is notably positioned at the forefront of digital currency innovation.

Additionally, the UAE has actively pursued its digital currency agenda. First, Abu Dhabi Bank recently announced the successful completion of a pilot for JPMorgan’s Coin Systems solution.

The UAE had previously disclosed plans for extensive CBDC work, including retail, wholesale, and cross-border CBDC application development.

Priority number one on this ambitious agenda is the mBridge cross-border payment project, followed by a cross-border CBDC venture with India.

The completion of proofs of concept for both domestic and wholesale CBDCs is anticipated by mid-2024, with R3 as a key partner for the domestic CBDC work.