India’s digital rupee CBDC, that was launched as part of a pilot test phase in November last year, is set to undergo trials on an international level. The Reserve Bank of India (RBI) has teamed up with the Central Bank of the UAE (CBUAE) to test the interoperability of its e₹-R CBDC. Both, RBI and the CBUAE have signed a memorandum of understanding (MoU), that will also allow the UAE to test their CBDC in India. This marks the first such agreement wherein two nations have come together to administer the use cases of their respective digital currencies on an international level.
CBDCs or central bank digital currencies are the blockchain representation of fiat currencies. Several nations around the world, including India, Japan, Australia, and China are working on developing their respective CBDCs, that would reduce the pressure on banks to create and manage physical cash notes.
India and the UAE, both nations are in the advanced phases of their CBDC trials, ready to kick the tests up a notch. The central banks of both countries entered the fresh MoU in Abu Dhabi on March 15.
“This bilateral engagement of testing cross-border use case of CBDCs is expected to reduce costs, increase efficiency of cross border transactions and further the economic ties between India and UAE. The MoU also provides for technical collaboration and knowledge sharing on matters related to fintech and financial products and services,” the RBI said in its official announcement.
As part of this MoU, India and the UAE have agreed to collaborate in conducting proof-of-concept test runs on their CBDCs to analyse their capabilities to process cross-border transactions.
Using CBDCs to facilitate international transactions would be cheap, with no intermediary nibbling out service charges in the process. CBDCs will be able to process these cross-border transfers instantly while also recording details of the transaction in a permanent and unchangeable format on the blockchain networks. This brings transparency to the existing financial systems.
“CBUAE and RBI will jointly conduct proof-of-concept (PoC) and pilot(s) of bilateral CBDC bridge to facilitate cross-border CBDC transactions of remittances and trade,” RBI added in its announcement.
In India, currently e-rupee worth over Rs. 130 crore are in circulation as part of the going trials. The detail was revealed by Indian Finance Minister Nirmala Sitharaman earlier this week. Over 50,000 testers, 5,000 selected merchants, and multiple banks are involved in the trial runs of the e-rupee CBDC.
The UAE, meanwhile, has included CBDCs as an integral tool that would help its citizens sustain in a completely cashless economy in the coming years. Its CBDC plans are expected to roll-out in full potential by 2026.
With more nations hopping onboard the CBDC wagon, the transactions in these digital fiat currencies are expected to shoot up exponentially in the coming years. Currently, around $100 million (roughly Rs. 826 million) in CBDCs are in circulation in different parts of the world where governments are carrying out trials.
By 2030, this figure is expected to reach $213 billion (roughly Rs. 17,60,880 crore) with an estimated growth of 260,000 percent, a recent study by Juniper Research said.