China and UAE Sign Memorandum of Understanding on Cryptocurrencies and Central Bank Digital Currencies (CBDCs)
Date: 2023-10-22 Author: Dima Zakharov Categories: IN WORLD
China and the UAE Sign Memorandum of Understanding on Cryptocurrencies
Last week, the People's Bank of China (PBOC) and the Central Bank of the United Arab Emirates (UAE) signed a memorandum of understanding, solidifying their cooperation in the realm of digital currencies and Central Bank Digital Currencies (CBDCs). This development follows a similar agreement between the Bank of China (BoC) and the First Abu Dhabi Bank (FAB), the largest bank in the UAE. These agreements mark a significant step forward in the collaboration between China and the UAE, reflecting their commitment to financial innovation.
The memorandum of understanding signed between the PBOC and the UAE Central Bank focuses on the development of CBDCs, and this is no coincidence. China has been actively developing its own digital currency, known as the digital yuan or eCNY, in recent years. This currency has been rolled out in several Chinese provinces and cities and has gained widespread acceptance. While China is actively promoting its CBDC domestically, it is also seeking opportunities for international usage, and the UAE, with its pivotal role in regional financial operations, presents an attractive partner.
It is important to note that both China and the UAE are actively developing their own CBDC projects. Within the framework of the mBridge project, which underlies the memorandum between the PBOC and the UAE Central Bank, particular emphasis is placed on cross-border payments. This holds strategic significance given the substantial volume of cross-border financial transactions between China and the UAE. Such cooperation allows for cost reduction and decreased delays in international payments, which is crucial for businesses and investors.
Optimizing International Financial Operations and the Potential of Central Bank Digital Currencies
This memorandum of understanding also underscores the potential of Central Bank Digital Currencies (CBDCs) in optimizing international financial operations. Shu-Pui Li, an advisor on digital currency in the UAE, expressed confidence in the prospects of cooperation between China and the UAE, especially considering the preference of Chinese companies to use the digital yuan (eCNY) for their transactions. The UAE has a significant presence of Chinese citizens and enterprises, with around 300,000 Chinese workers in the country. Furthermore, almost 60% of China's trade with the Middle East and North Africa passes through the UAE. These factors make CBDC collaboration a logical step.
CBDCs offer significant potential for streamlining infrastructure payments within the "Belt and Road" initiative. This approach eliminates the need for intermediary banks and can reduce costs associated with international financial operations. It is worth noting that recent use of the Swift network for sanctions has created problems and delays in international payments, and CBDCs could represent an alternative that improves this process.
Long-Term Prospects and the Scale of CBDC Projects
China and the UAE are both leaders in CBDC development. China is promoting the digital yuan within its provinces and cities, while the UAE is developing comprehensive plans for CBDC implementation, covering retail, wholesale, and cross-border applications. The mBridge project, which encompasses cross-border payments, plays a pivotal role in this extensive program.
The concept validation of CBDCs, both domestic and wholesale, is currently in progress, with plans to complete it by mid-2024. This means that in the coming years, we can expect further details and implementation of China and the UAE's CBDC projects.
