UAE’s First Cross-Border Digital Dirham Payment Signals Maturation of CBDC Landscape
The United Arab Emirates (UAE) has recently accomplished a notable achievement in the realm of financial technology, completing its inaugural cross-border payment employing the Digital Dirham, the country’s central bank digital currency (CBDC). Sheikh Mansour Bin Zayed Al Nahyan, Chairman of the Central Bank of the UAE, initiated this historic transaction, transferring AED 50 million directly to China through the ‘mBridge’ platform.
The cross-border payment, executed during the celebration of the Central Bank’s 50th Anniversary, underscores the UAE’s commitment to adopting financial technology and enhancing its global financial standing. The mBridge platform, introduced in 2021, is a collaborative effort between the central monetary authorities of China, Hong Kong, Thailand, and the UAE, in partnership with the Bank for International Settlements (BIS).
Key Aspects of mBridge
- International Collaboration: Project mBridge is a multinational initiative, featuring active participation from China, Hong Kong, Thailand, and the UAE. Additionally, 23 central banks are observing the project’s developments.
- Real-Time Transactions: Leveraging a single-platform, direct-access infrastructure, the mBridge ledger platform facilitates real-time, peer-to-peer transactions using the HotStuff+ consensus mechanism, ensuring expedited transfers of each participating country’s national digital currency.
- Project Genesis: Initiated in 2021, mBridge completed its first pilot in September 2022, showcasing its potential to transform cross-border payments by addressing issues such as high costs, low speed, and operational complexities.
The international acknowledgment of the mBridge project’s success is evident. Representative Maxine Waters, a member of the House Financial Services Committee in the United States, has expressed reservations about potential misuse, emphasizing the need for vigilant regulatory oversight. This highlights the geopolitical considerations surrounding the use of CBDCs in cross-border transactions.
Sheikh Mansour emphasized the strategic commitment of the UAE’s leadership to position the country as a global financial center. This involves fostering financial and monetary stability, enhancing efficiency in the financial system, and driving economic growth to support overall development efforts.
The mBridge project’s successful implementation of the first cross-border payment using the Digital Dirham signifies a notable progression in the evolution of CBDCs and cross-border transactions. As central banks globally explore and adopt CBDCs, the mBridge project stands as a pioneering initiative with the potential to reshape the landscape of cross-border payments.
Challenges and Prudent Considerations
While the mBridge project demonstrates substantial progress, several challenges merit careful consideration. Concerns about potential misuse of CBDCs for evading economic penalties underline the importance of rigorous regulatory oversight. Additionally, the report emphasizes the significance of addressing foreign exchange (FX) costs, particularly when dealing with more liquid currencies like the US dollar.