Chinese banks are entering into foreign cooperation agreements in droves to improve the adoption rates of digital currencies despite a blanket ban that stunted the local industry in 2021.

The trend was noted in a Chinese Belt and Road Summit announcement, with the report highlighting bilateral use cases in payments and finance. While digital currencies are gaining significant traction, Chinese banks are narrowing their focus on central bank digital currencies (CBDC).

The report beamed a searchlight on a high-level cooperation agreement between the United Arab Emirates’ (UAE) First Abu Dhabi Bank (FAB) and the state-owned Bank of China (BoC). Per the report, the ambitious plan will see both banks explore using CBDCs to settle cross-border transactions.

Not content with allowing commercial banks to take the lead, the People’s Bank of China (PBoC) announced a bilateral agreement with the Central Bank of the UAE (CBUAE). Both banking regulators are keen on using their CBDCs to reduce the time and costs associated with cross-border transactions.

There are 300,000 Chinese citizens resident in the UAE, accounting for a chunk of total remittances to mainland China, prompting the government to explore the use of CBDCs. Previous research suggests that both nations can save billions in transaction costs annually by swapping to CBDCs over traditional cross-border payment options.

Apart from cost-savings, pundits have opined that the increasing international partnerships by Chinese banks are spurred by the need to circumnavigate potential economic sanctions by Western powers. Chinese authorities are taking a cue from Russia’s ban on the SWIFT network, and with altercations with the U.S. reaching a zenith, there are fears that economic sanctions may be slammed on China.

“We cannot tolerate any disruption. At the moment, we see that is happening,” said one central banking executive.

A collaboration with the Bank of Indonesia was mentioned, but the report failed to describe the nature of the partnership. Analysts say there is a possibility for the partnership to revolve around digital assets, given Indonesia’s own forays into rolling out a digital rupiah.

China is on a collaboration streak

In 2022, China joined forces with the Bank for International Settlements (BIS) to explore the possibilities of using retail CBDCs for cross-border payments. The study involved a collaboration of commercial and central banks from the UAE, Singapore, and Hong Kong.

Hong Kong and China have deepened CBDC ties over the last few months, with both nations keen on achieving cross-border functionalities. At the moment, Chinese tourists visiting Hong Kong can pay for goods and services using the digital yuan in select stores, while Hong Kong travelers to China can easily top-up their digital yuan wallets using several payment alternatives.

Early in the year, several Chinese banks revealed a desire to offer banking services to virtual asset service providers (VASPs) looking to set up operations in Hong Kong.

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