UAE records first digital dirham transaction via mBridge CBDC

The United Arab Emirates (UAE) has completed its first cross-border payment with the digital dirham via the mBridge platform.

As per the report of Gulf News, the Central Bank of the United Arab Emirates (CBUAE) initiated a 50 million dirhams ($13.6 million) transfer to China at the end of January. CBUAE Chair Sheikh Mansour Bin Zayed Al Nahyan issued the green light for the transaction on the occasion of the Golden Jubilee celebration of the central bank.

The bilateral transaction was settled on mBridge, a joint wholesale central bank digital currency (CBDC) project by the Bank for International Settlements (BIS). The cross-border CBDC platform, developed with banking regulators from China, Thailand, and Hong Kong, is expected to improve bilateral trade among participants upon launch.

The project uses a “custom-built” distributed ledger with EVM compatibility for interoperability, according to BIS. The use of smart contracts eliminates third parties in the transaction process, while a “direct-access” infrastructure and a dashing consensus algorithm facilitate real-time transactions.

“For each cross-border transaction on the platform, only the two commercial bank counterparties, their respective central banks and the CBDC-issuing central bank can identify the parties involved in the transaction and decrypt the payment transaction meta-data,” read a BIS report on the internal working of the system.

While the CBUAE’s cross-border transaction with China offers a glimpse into the future utility of the mBridge platform, results from a 2022 pilot hinted at an impressive adoption rate for the platform. Under the one-month pilot, central and commercial banks from participating nations conducted over 160 international transactions worth over $22 million.

Given the promise for future successes, Hong Kong Monetary Authority (HKMA) CEO Eddie Yue disclosed that the coalition seeks to onboard a larger pool of central banks ahead of a minimum viable product (MVP) launch. Yue commented the mBridge would support interested banking regulators whether or not they are inching toward developing a CBDC.

“We are expecting to welcome more fellow central banks to join this open platform,” Yue remarked. “And very soon we will launch what we call a minimum viable product, with the aim of paving the way for the gradual commercialisation of mBridge.”

UAE marches toward CBDCs

In line with the quest for a world-class digital economy, the UAE has thrown its weight behind developing a CBDC. The central bank is eyeing a two-pronged approach with the planned rollout of retail and wholesale CBDC offerings to be accepted as legal tender across the country.

The banking regulator is also pursuing cross-border functionalities for its CBDC offerings,
signing a bilateral agreement with the Reserve Bank of India (RBI) to explore the feature. The bilateral deals have begun yielding fruits for the UAE, given the latest cross-border transaction with China.

Watch: CBDCs are more than just digital money