The Central Banks of China and the United Arab Emirates (UAE) recently signed memoranda of understanding (MoUs) relating to digital currencies during the third “Belt and Road” International Cooperation Summit Forum in Beijing this week. This signifies a significant step towards digital currency cooperation between the two countries.
Partnerships between Central Banks
The People’s Bank of China (PBOC) has signed an MoU on strengthening digital currency cooperation with the Central Bank of the United Arab Emirates. Additionally, the state-owned Bank of China (BoC) has entered into a digital currency cooperation agreement with the UAE’s largest bank, the First Abu Dhabi Bank (FAB). These collaborations are an extension of the existing partnership within the mBridge project, which focuses on cross-border payments.
The mBridge initiative also involves the Bank for International Settlements (BIS), as well as the central banks of Thailand and Hong Kong. Furthermore, there are indications of potential collaboration with the Bank of Indonesia, although it is uncertain whether this relates specifically to digital currency. Indonesia has been actively exploring its own digital rupiah program.
“Collaboration in digital currencies between China and UAE holds immense potential, especially considering Chinese companies’ preference for using the eCNY (digital yuan) for payments, a currency widely accepted by UAE corporations.” – Shu-Pui Li, Advisor on Digital Currency, UAE
The significant presence of Chinese nationals in the UAE, with approximately 300,000 Chinese workers employed, further strengthens this synergy. Moreover, nearly 60% of Chinese trade with the Middle East and North Africa transits through the UAE, solidifying the country’s role in facilitating economic ties.
The Implications and Advantages of Central Bank Digital Currencies (CBDCs)
Shu-Pui Li highlights the potential application of Central Bank Digital Currencies (CBDCs) for infrastructure payments, eliminating the need for intermediary banks. This approach not only reduces costs but also minimizes delays, addressing concerns over the recent use of the Swift network for sanctions purposes.
The Bank of China’s direct access to the digital yuan CBDC positions it at the forefront of digital currency innovation among commercial banks. This advantage distinguishes it from others in the industry.
The UAE has also been actively pursuing its digital currency agenda, evident in the successful completion of a pilot for JPMorgan’s Coin Systems solution by the First Abu Dhabi Bank. The country has plans for comprehensive CBDC work, covering retail, wholesale, and cross-border applications. The mBridge cross-border payment project is currently a top priority, along with a planned bilateral cross-border CBDC venture with India. The completion of proofs of concept for domestic and wholesale CBDCs is expected by mid-2024.
Overall, the collaboration between China and UAE in the realm of digital currencies signifies a promising development towards enhanced cross-border payments and a more efficient financial ecosystem.
