A Chinese Belt and Road Summit released a list of foreign cooperation agreements. Amongst them were two related to digital currency. The state-owned commercial Bank of China (BoC) has signed a cooperation agreement with UAE’s largest bank, First Abu Dhabi Bank (FAB).
Additionally, the People’s Bank of China signed a digital currency agreement with the Central Bank of the UAE. The two central banks already collaborate on the mBridge project for cross border payments alongside the BIS, and the central banks of Thailand and Hong Kong.
The Belt and Road announcement also mentioned a collaboration with the Bank of Indonesia, but it was unclear whether that related to digital currency. Indonesia has an active digital rupiah program.
The UAE’s advisor on digital currency, Shu-Pui Li, discussed the potential for collaboration at an mBridge event last year. He noted that Chinese companies prefer to pay using the eCNY (digital yuan), and UAE corporates are happy to receive it. That explains the rationale for the BoC-FAB tie-up. Additionally, 300,000 Chinese nationals work in the UAE, and 60% of Chinese trade with the Middle East and North Africa passes through the UAE.
Li also mentioned the Belt and Road initiative, noting the potential to use CBDC for infrastructure payments, cutting out intermediary banks. That saves costs and prevents delays. There’s also the recent use of Swift for sanctions purposes, something China fears. “We cannot tolerate any disruption. At the moment, we see that’s happening,” said Mr Li.
The Bank of China is one of the few commercial banks with direct access to the digital yuan CBDC. Smaller banks have to go through the connected banks.
The UAE’s digital currency, CBDC plans
Meanwhile, last week FAB said it completed a pilot of JP Morgan’s Coin Systems solution.
In early 2023 the UAE announced plans for comprehensive central bank digital currency (CBDC) work – retail, wholesale and cross border CBDC.
The mBridge cross border payment project is the number one priority in its program. Next is a bilateral cross broder CBDC project with India. And finally, it is planning proofs of concept for both domestic and wholesale CBDC to be completed by mid-2024. It partnered with R3 for the domestic work.
It’s not surprising that cross border CBDC work is important, given the UAE’s large migrant workforce.