Instant money transfers between India and the UAE may be a reality soon with the central banks of both countries working to link their sovereign digital currencies, a person familiar with the development said. The move is significant since the UAE, home to more than four million Indians, is among the top sources of remittances to India.
Unlike regular money transfers mediated by banks, transactions in central bank digital currency (CBDC) happen in a flash, because the money moves directly from wallet to wallet. Retail transactions as well as large-value transactions are expected to benefit from such a linkage. The Reserve Bank of India (RBI) has been piloting its CBDC, e-Rupee, for over 3 years and is exploring foreign linkages to speed cross-border fund flows.
“Take the example of a fintech that is present on both sides. When a user wants to send money, that fintech can debit the rupee CBDC account of the customer and transfer it to UAE,” the person cited above said on the condition of anonymity.
Over eight million Indians currently use the e-Rupee, with total transactions of 120 million valued at ₹28,000 crore since its 2022 launch, central bank data till December showed. While retail CBDC can be used to pay other users, as well as merchants for goods and services, wholesale use cases include interbank settlements and large-value transactions. Data on wholesale transactions is not readily available.
The UAE linkage is important because of its status as one of the largest sources of inward remittances for India. The UAE, home to the emirates of Dubai, Abu Dhabi and Sharjah, lost the top spot to the US in remittances in recent years, but still accounts for 19.2% of remittances into the world’s fourth-largest economy.
Emirates entities like LuLu Group, DP World and Emaar Properties operate significant businesses in India, while Indian conglomerates such as Larsen & Toubro, Tata Group and Reliance Industries have large operations in the UAE. The Central Bank of the UAE issued the first Digital Dirham as legal tender in 2024.
The RBI's FY25 annual report had said it was “exploring commencement of CBDC pilots on cross-border payments both on a bilateral and multilateral basis”, in its annual report. However, its discussions with the UAE central bank have not been reported so far.
Emails sent to RBI and to the Central Bank of the UAE remained unanswered.
Experts said that to start with, it will be a bilateral or multilateral arrangement, with the platforms of both countries displaying exchange rates.
“It is essentially like a parallel channel to the traditional remittance channels via the banking route,” said Mihir Gandhi, partner and leader for payments transformation at professional services firm PWC India.
“Apart from remittances, payments for goods and services for cross-border transactions B2B (business-to-business), B2C (business-to-consumer) and G2G (government-government) payment transactions can be enabled if the features allow,” Gandhi said. While it is an innovative initiative to replace existing channels for cross-border payments, one challenge is the linkage to other countries and the need for India to be ready with the right CBDC infrastructure, he added.
Others said a key challenge would be the anonymity of these transactions. Given the cash-like nature of sovereign digital currencies, whether they should remain anonymous or not is debatable.
“A key challenge is balancing anonymity with traceability. In UPI, traceability is available given account-to-account transfer; whereas CBDC intends to offer anonymity as it is considered an equivalent of physical cash,” said Parijat Garg, an independent fintech expert.
Garg said that without the ability to track, it needs to be seen how one tracks cross-border payments to check if there is any violation of foreign exchange guidelines.
“There could be limits defined around how much can be transferred through retail CBDC, and whether it requires a local bank account to be KYC-verified. Wallets are usually designed to do small-value transactions, while high-value transactions are usually banking ecosystem transactions,” said Garg.
The RBI has been pushing the use of CBDC as an alternative to stablecoins, a form of cryptocurrency. In fact, Deputy Governor T. Rabi Sankar said at a Mint event in December that stablecoins do not serve a purpose that fiat money cannot serve better.
Sankar said that much of the appeal of stablecoins lies in their promise of cheaper, faster international transfers, but the same efficiency can be achieved through bilateral or multilateral CBDC corridors. “This is an area where India can play a shaping role, by helping build the case for interoperable CBDC arrangements among emerging markets and beyond,” he said.