The United Arab Emirates (UAE) has signaled its intention to launch a central bank digital currency (CBDC) to improve its digital economy amid rapid global financial innovation.
The country’s chief banking regulator, the Central Bank of the UAE (CBUAE), announced in a public statement that the CBDC launch forms part of its Financial Infrastructure Transformation Program (FIT program). The initiative is designed to “accelerate the digital transformation in the financial services sector.”
UAE’s CBDC approach appears to be two-pronged, with the central bank eyeing both retail and wholesale offerings for the financial ecosystem. Under the retail version, citizens will have access to digitized versions of the dirham, which will be accepted as legal tender in the country for payment of goods and services.
Gleaning on the statement, a wholesale CBDC could be in the works for the UAE in its quest to improve remittances between financial institutions as it eyes cross-border functionalities. The timeline for the launch of the CBDC was not disclosed to the public, but H.E. Khaled Mohamed Balam, CBUAE Governor, confirmed that the initiatives will be set for full integration by 2026.
“CBDC for both cross-border payments and domestic usage in order to address the problems and inefficiency of cross-border payments and help drive innovation for domestic payments respectively,” read the CBUAE’s statement.
The UAE has dabbled into CBDC in the past, achieving relative success following the collaboration with the Bank for International Settlements (BIS) Innovation Hub and the central banks of Thailand, Hong Kong, and China. The experiment, titled Project mBridge, was described as the “world’s largest pilot” for CBDCs with a focus on cross-border functionalities.
UAE financial landscape is FIT
The CBUAE’s statement revealed several initiatives under the FIT program, which the government will be interested in launching over the coming days. The initiatives, numbering nine in total, reinforce the central bank’s drive to “enhance monetary and financial stability and consumer protection through robust financial infrastructure and adoption of digital technologies.”
Apart from the proposed launch of CBDCs, FIT program initiatives include the launch of a Card Domestic Scheme, eKYC, Open Finance, Supervisory Technology, and an Innovation Hub. Others include a robust Financial Cloud, an Instant Payments Platform, and an Excellence and Customer Experience initiative.
Dubai, an Emirate in the country, has already been basking under the light of new regulations for its local virtual currency ecosystem and the creation of a new regulatory entity.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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