The Central Bank of the UAE (CBUAE) plans to launch its Digital Dirham central bank digital currency (CBDC) between October and December. On Thursday, the bank said that the Digital Dirham token will improve security and efficiency of financial transactions, while reducing the costs of facilitating national and international payments. The CBUAE has also created a wallet to simplify the management and use of its upcoming CBDC.
A CBDC is the digital representation of a fiat currency, issued on a blockchain. Each CBDC token carries the same value as its physical counterpart. Transactions facilitated through CBDCs leave permanent records on the subsequent blockchain — enhancing transparency in existing financial systems while reducing the dependency of cash notes.
The CBUAE disclosed these details about its upcoming CBDC, and unveiled a new symbol for the digital and fiat version of its fiat currency.
CBUAE Governor Khaled Mohamed Balama said that he expects the Digital Dirham to boost national financial stability and inclusion, along with helping law enforcement agencies to combat financial crime.
“It will enable the development of innovative digital products, services, and new business models, while reducing cost and increasing access to international markets,” he said in a prepared statement.
How the UAE is Developing Its CBDC
The task of creating the Digital Dirham was a key part of the CBUAE’s Financial Infrastructure Transformation (FIT) programme, incorporated in 2023. The central bank plans to revamp the financial system in the region using “tokenisation” and “smart contracts”, once the digital Dirham is launched in circulation.
The UAE’s CBDC will be able to facilitate tokenisation and expand liquidity access with asset fractionalisation, according to the central bank. It also noted that the token will use smart contracts to automate complex transactions that involve multi-party and multi-stage conditions or obligations.
Outlining the availability of the digital currency, the CBUAE said, “individuals and businesses will be able to obtain the Digital Dirham through licensed financial institutions, such as banks, exchange houses, finance companies and fintech companies, according to the use cases that will be activated.”
Digital Dirham holders will be able to use the upcoming government wallet system to process retail, wholesale, and international payments among other transactions, using the CBDC.
The Global Race to Launch CBDCs
The race to develop and deploy CBDC has only intensified in recent years. In India, the CBDC trials have reached advanced trial stages. Multiple banks and merchants are participating in these trials. In November last year, former RBI Deputy Governor, T Rabi Sankar had said that the central bank was in no haste to roll out the eRupee CBDC until its impact on the financial systems is thoroughly assessed.
More recently, South Korea reportedly said that it is preparing to launch its CBDC trials for real world transactions soon.
Hong Kong, Iran, Brazil, and China are among other nations that are consistently working on their respective CBDCs.
The International Monetary Fund (IMF) proposed a framework called “REDI” to deploy CBDCs and steps to promote the adoption of CBDCs. The international financial agency emphasised that raising awareness and understanding of CBDCs is vital to promote their adoption.