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UAE, India to boost cooperation via digital currency

The Emirati Central Bank has begun implementing its digital dirham strategy following a financial cooperation agreement with India and the UAE's cryptocurrency push.
A man walks past a sign of the Reserve Bank of India (RBI) in Mumbai on August 5, 2022. - India's central bank on August 5 hiked interest rates for the third time in four months, as Asia's third-largest economy contends with a widening trade deficit and weakening currency. (Photo by Indranil MUKHERJEE / AFP) (Photo by INDRANIL MUKHERJEE/AFP via Getty Images)

The United Arab Emirates and India are continuing to further bilateral cooperation, including with a digital currency initiative announced on Thursday. 

The UAE Central Bank signed an agreement with the Emirati artificial intelligence firm G42 Cloud to start the process of ultimately launching a digital form of the Emirati currency, the dirham. The strategy will include feasibility work with India for the purpose of trade, the soft launch of a program called “mBridge” to facilitate international trade with the currency, and feasibility work on using the currency for wholesale and retail domestically, the bank said in a statement. 

The announcement follows the Emirati Central Bank and India’s Reserve Bank signing a memorandum of understanding last week on increasing cooperation regarding financial innovation. The digital dirham announcement also follows pilot programs with the central banks of India, China, Thailand and other entities, according to another statement. 

What it means: Digital currency refers to currency that can only be held and traded digitally, as opposed to fiat money. It is appealing because it does not require an intermediary to be used. Digital coins pegged to foreign currencies already exist, such as USDC, which is pegged to the US dollar. Digital currency has potential value for facilitating trade and also allows people to more easily obtain currencies of other countries. 

Iran and Turkey have also expressed interest in launching digital forms of their respective currencies. 

Why it matters: The UAE Central Bank cooperating with its Indian counterpart on the digital dirham is notable. The UAE and India are increasingly working together on economic matters. Last year, the two countries signed a Comprehensive Economic Partnership Agreement, which basically amounts to a free trade deal. 

The launch of the digital currency project also demonstrates the UAE’s continued interest in fintech. The UAE has attracted many cryptocurrency platforms to its shores in recent years. The global cryptocurrency downturn has negatively affected the UAE, however. The crypto platform Kraken closed its Abu Dhabi office in February after operating for only a year. 

A digital national currency is a potentially more stable way to use virtual assets to boost the Emirati economy. 

Know more: India has growing interests in the Gulf, particularly regarding energy, Jaime Moore-Carrillo wrote in a Trend Report for Al-Monitor PRO last month. 

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