India, UAE Explore Linking Digital Currencies to Enable Instant Remittances: Reports

India and the United Arab Emirates (UAE) are exploring a framework that could link their central bank digital currencies to enable quicker cross-border transfers, according to Mint reports.  

The plan involves connecting the Reserve Bank of India’s e-Rupee with the UAE’s Digital Dirham. 

Direct Wallet Transfers 

If the system is introduced, funds could move directly between digital wallets in the 2 countries.  

The arrangement would reduce reliance on traditional banking channels that typically route international transfers through several intermediary institutions. 

How the System Could Work 

Payments made through central bank digital currencies are designed to move directly from one wallet to another.  

Under the proposed structure, a fintech platform operating in both countries could debit a sender’s CBDC wallet in India and credit the recipient’s wallet in the UAE with the corresponding amount. 

Such transactions are expected to settle almost immediately. The mechanism could be used for everyday remittances as well as larger business payments across the two economies. 

Significance of the Remittance Corridor 

The potential link is relevant given the scale of financial flows between India and the UAE. The Gulf nation is home to more than 4 million Indians working across sectors such as construction, retail and services. 

The UAE accounts for about 19.2% of the remittances received by India. While the United States has recently overtaken it as the largest source, the UAE continues to remain a major contributor to overseas inflows. 

Progress of India’s Digital Rupee 

India began testing its central bank digital currency in 2022 through retail and wholesale pilot programmes.  

Retail CBDC is intended for payments between individuals and merchants, while the wholesale version focuses on settlements between financial institutions. 

According to central bank data available up to December, more than 8 million users are part of the retail e-Rupee pilot. Around 120 million transactions worth nearly ₹28,000 crore have been processed through the platform. 

Wider Digital Currency Developments 

The Central Bank of the UAE introduced Digital Dirham as legal tender in 2024. India’s central bank has also indicated that it is examining bilateral and multilateral arrangements to test cross-border digital currency payments. 

Read More: India and Finland Forge Strategic Partnership Focused on Digital Innovation and Sustainability! 

Conclusion 

Discussions between the 2 countries are still at an exploratory stage. A connected CBDC corridor, if developed, could become an additional channel for transferring money between India and the UAE. 

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