The United Arab Emirates will become the latest nation to introduce central bank digital currencies (CBDCs), with its Digital Dirham to be launched between October and December this year. The Central Bank of the UAE (CBUAE) announced the timeline on Thursday, positioning the CBDC as a pillar of the nation’s wider vision to create a more secure, cost-effective, and transparent financial system.
The CBUAE has also launched a standalone wallet to handle the digital Dirham and presented a new symbol that is to be employed on both the digital and fiat forms of currency. People and enterprises, stated the central bank, shall access the CBDC through licensed institutions such as banks, fintech companies, finance companies, and exchange houses.
CBDCs are central bank-issued and backed versions of sovereign money, based on blockchain. Unlike cryptocurrencies, which are decentralised and unstable, CBDCs provide the advantages of digital currency, including speed and traceability, but with the stability of conventional fiat. Each CBDC transaction is posted on a blockchain, so it can be traced and cash dependence is lessened.
For the UAE, the Digital Dirham is also anticipated to hold a central position in combating financial crime. In the view of the CBUAE, encrypted transactions on blockchain networks will help law enforcers trace transactions made with illicit funds through a digital trail.
The CBDC is a key component of the UAE’s Financial Infrastructure Transformation (FIT) programme, which was launched in 2023. With projects like tokenisation and smart contracts, the nation is working on future-proofing its financial sector.
Smart contracts, executable code that executes agreements automatically, will be utilized to make sophisticated, multi-step transactions with the Digital Dirham. The tokenised format of the money will also facilitate asset fractionalisation, making liquidity accessible to a broader set of market players.
Users of the Digital Dirham will be able to make domestic, wholesale, and cross-border payments through the government’s forthcoming wallet system, the bank announced.
The UAE becomes the latest in a widening number of nations to speed up plans to digitalise their monetary systems. India is running large-scale tests of the eRupee, while South Korea has also made moves to trial its CBDC on a real-world basis. China, Brazil, Iran, and Hong Kong meanwhile are all continuing to develop their own digital currencies.