The UAE’s Central Bank (CBUAE) has announced the completion of “the world’s largest pilot” of central bank digital currency (CBDC) in collaboration with the central banks of four countries. Central banks from Thailand, Hong Kong, and China, with more than 20 commercial banks from these countries, took part in the pilot, recording over $21 million in transactions during the experiment.
The multinational CBDC pilot was part of Project mBridge, which saw the participation of central banks from Thailand, Hong Kong, and China, according to a Reuters report. More than 20 commercial banks from these countries took part in the pilot, recording over $21 million in transactions over the six-week experiment period.
“The project mBridge demonstrated faster, cost-effective and secure cross-border monetary settlements using central bank money, identified as a G20 economic priority,” the CBUAE said in a statement.
Aside from improving cross-border payments, CBUAE’s governor Khaled Mohamed Balama noted that the pilot was also targeted at the local financial sector enhancement. This indicated that the move will “support UAE competitiveness, diversity and growth of the financial sector in line with future economic trends,” he stated.
Developing a potential cross-border CBDC, the UAE is also embracing virtual currencies and hopes to transform itself into the leading hub for digital assets. UAE’s government recently noted that it was in talks with several digital asset firms to potentially set up their operations in the country.
Local governments in UAE’s regions are not leaving all the work to the central government, with the Emirate of Dubai attracting global industry firms like Binance and Crypto.com. Dubai has also made a strong play for the metaverse by announcing that it was targeting 40,000 jobs in the metaverse by 2030, while the UAE opened a branch of the Ministry of Economy in the metaverse.
The mCBDC project was put together by the Bank for International Settlements (BIS) Innovation Hub in Hong Kong. An official report highlights the potential it has for the future of CBDCs. The report noted the rationale for cross-border CBDCs, noting that the frictions involved could cost users up to $120 billion in transaction fees annually and that “emerging markets tend to bear the brunt of the friction.”
“The solution uses a custom shared permissioned blockchain, which it boasts was developed by central banks for central banks,” the report said.
Moreover, privacy concerns over the use of the mCBDCs were whittled down over the permissioned nature of the decentralized ledger, allowing participating commercial banks to view their own transactions. The report added that zero-knowledge proof is being considered as an added security layer to improve privacy.