India’s Central Bank Tests Digital Rupee Cross-Border Transfers With UAE
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The Reserve Bank of India (RBI) has begun a pilot project to test cross-border payments using its central bank digital currency (CBDC), the digital rupee, in partnership with the United Arab Emirates (UAE). The move signals India’s intent to make international money transfers faster, cheaper, and more secure, while reducing dependency on traditional banking networks like SWIFT.
According to officials familiar with the matter, the trial is being conducted in collaboration with the Central Bank of the UAE and several participating banks from both countries. The pilot will focus on remittances, a crucial financial lifeline for millions of Indian workers in the Gulf region. India remains the world’s largest recipient of remittances, with inflows exceeding $125 billion annually, a significant portion of which comes from the UAE and other Middle Eastern countries.
The RBI has been testing the digital rupee domestically since late 2022, focusing on wholesale settlements and retail transactions. However, this cross-border trial marks the first major step toward international use. By leveraging blockchain-inspired technology, the RBI aims to cut down transfer times from days to minutes and reduce the fees often charged by intermediaries.
Experts suggest that if successful, the digital rupee could eventually serve as a model for bilateral or even multilateral CBDC corridors. Such systems would allow direct settlements between central banks, eliminating currency conversion inefficiencies and improving transparency. The Bank for International Settlements (BIS) has also supported similar cross-border CBDC experiments, indicating global momentum toward digital payment integration.
For India, the initiative not only strengthens financial ties with the UAE but also enhances the rupee’s role in international trade and settlements. Meanwhile, the UAE has been positioning itself as a fintech and blockchain hub, making it a natural partner for such a trial.
Market observers believe this pilot could pave the way for wider CBDC adoption in Asia and the Middle East. However, challenges such as regulatory harmonization, cybersecurity risks, and technological interoperability will need to be addressed before a full-scale rollout.
If the pilot succeeds, Indian workers abroad could soon enjoy near-instant, low-cost money transfers, while businesses may benefit from smoother trade settlements. For the RBI, it’s a strategic step toward shaping the future of cross-border finance in the digital era.
