UAE Central Bank joins Hong Kong government's digital currency project

The UAE Central Bank joined the second phase of a digital currency project for cross-border payments initiated by the Hong Kong Monetary Authority and the Bank of Thailand.

The initiative, which succeeds Project Inthanon-LionRock by the HKMA and Thai central bank, will explore the capabilities of distributed ledger technology in enabling real-time, cross-border payments and will focus on the development of a proof-of-concept prototype, the banking regulators said yesterday.

Named the m-CBDC Bridge project, it is expected to make cross-border transfers quicker and easier by removing complex regulatory compliance procedures and other inefficiencies.

It will also look at businesses-use cases for domestic and foreign currencies in cross-border payments.

UAE Central Bank governor Abdulhamid Saeed said the regulator and the Saudi Central Bank recently completed a proof-of-concept project on a wholesale central bank digital currency "to settle domestic and cross-border transactions using central bank money on a distributed ledger technology".

"Building on this momentum, the UAE Central Bank is very excited to be able to use the experience gained so far and participate in the m-CBDC Bridge project,” said Mr Saeed at the signing of a FinTech collaboration agreement between the UAE regulator and the HKMA.

The Digital Currency Institute of the People’s Bank of China is also joining the m-CBDC Bridge project.

“The participating central banks will take into account the results of the PoC [proof of concept] work to evaluate the feasibility of the m-CBDC Bridge project for cross-border fund transfers, international trade settlement and capital market transactions,” the UAE, Hong Kong and Thai regulators said yesterday.

Authorities in Hong Kong and Thailand launched the first phase of the study into using central bank digital currencies for cross-border payments in the fourth quarter of 2019.

A cross-border corridor network prototype was developed, allowing participating banks in Hong Kong and Thailand to conduct fund transfers and foreign exchange transactions.

The authorities agreed to develop this, bringing on board other partners and expanding the programme's reach.

The project comes amid growing interest in regulated digital currencies by central banks around the world as the value of privately issued digital currencies rises.

The People’s Bank of China intends to become the world’s first central bank to issue a digital currency while the Riksbank, Sweden’s central bank, is testing the e-krona.

The UAE Central Bank has yet to accept or acknowledge crypto or digital assets as a legal tender in the UAE. The only legal tender in the country is the UAE dirham.

Earlier this week, the International Monetary Fund said in a blog post that central bank digital currencies can co-exist with privately issued cryptocurrencies.