By Andrei Skvarsky.
The central bank of the United Arab Emirates (CBUAE) last week took a major formal step in implementing a plan to create a digital version of the dirham and thereby step up the UAE’s role in an international project to digitise international payments.
At a ceremony in Abu Dhabi, the CBUAE signed into effect what is known as the Digital Dirham strategy.
The mBridge project, which is overseen by the Basel-headquartered Bank for International Settlements (BIS), today brings together the central banks of Hong Kong, Thailand and China besides the CBUAE.
It involves building a platform for quicker, cheaper, universally accessible and risk-free cross-border payments by interconnecting central bank digital currencies (CBDCs), digital versions of national currencies issued by central banks to make transactions more efficient and secure.
The BIS, which styles itself “a bank for central banks”, argues that the current international payment system based on correspondent banks fails to keep pace with global economic integration.
It is too costly and slow, is rather opaque and involves operational complexities, according to the BIS.
“Banks are also paring back their correspondent networks and services, leaving many participants (notably emerging market and developing economies) without sufficient or affordable access to the global financial system,” the institution says on its website.
Emirati artificial intelligence and cloud computing company Group 42 (G42) and U.S. financial services digitiser R3 are going to help the CBUAE to pull off the Digital Dirham project.
Under separate bilateral agreements, the CBUAE and the Indian central bank are planning to test the use of the two countries’ CBDCs in Emirati-Indian transactions and the Emirati and Saudi central banks have been joining forces under a project to create a UAE-Saudi digital currency and distributed ledger. Both the Emirati and Saudi central banks have expressed general satisfaction with what they have achieved so far under the project, called Aber (Arabic for “crossing boundaries”).
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