The United Arab Emirates, which has just announced its CBDC program, is among the countries worldwide that have talked about central bank digital currencies (CBDCs) for some time. Some countries are reluctant to digitize their currencies, but several are launching pilot programs for CBDCs.
CBUAE Launches Digital Dirham
On Thursday, H.E. Khaled Mohamed Balama, Governor of the Central Bank of the UAE (CBUAE), announced that the first phase of the digital dirham CBDC program had been launched. The CBUAE initiated this program by unveiling three major pillars. Firstly, the soft launch of the ongoing project, named mBridge, is a joint effort by the Bank for International Settlements (BIS) and the central banks of Hong Kong, the Chinese mainland, the UAE, and Thailand.
This collaboration aims to research cross-border payments and multi-CBDC transactions. Secondly, proof-of-concept work has been conducted for bilateral CBDC bridges with India. Lastly, proof-of-concept work has been conducted for domestic CBDC issuance covering both wholesale and retail usage. Governor Balama expressed his belief that the UAE’s CBDC initiative will boost its standing as a leading global financial hub.
Within the next 12 to 15 months, the UAE plans to finalize the first phase of its CBDC program. Governor Balama also added;
“The launch of our CBDC strategy marks a key step in the evolution of money and payments in the country. CBDC will accelerate our digitalization journey and promote financial inclusion. We look forward to exploring the opportunities that CBDC will bring to the wider economy and society”
UAE Prioritizes CBDC Development
In its 2023-2026 roadmap, the UAE central bank initially prioritized the issuance of digital fiat. However, the central bank of Saudi Arabia has also prioritized the development of a central bank digital currency (CBDC) and the two monetary regulators have partnered in this endeavor.
Moreover, the UAE has taken a progressive stance on crypto policies, with Dubai having established a regulatory body dedicated to cryptocurrency and implementing crypto regulations. This approach has attracted many major crypto companies to establish bases in the city. Additionally, Ras Al Khaimah (RAK), one of the emirates comprising the UAE, is in the process of creating the first free economic zone solely dedicated to virtual assets and digital companies
CBDC Adoption in MENA
In October 2022, the Central Bank of the United Arab Emirates (CBUAE) completed its CBDC pilot in collaboration with commercial banks in four jurisdictions. CBUAE officials stated that the multinational CBDC pilot was part of Project mBridge, which showcased faster, cost-effective, and secure cross-border monetary settlements using central bank money.
In January 2022, the Arab Monetary Fund (AMF) published a report that focused on 17 Arab central banks, such as those in Jordan, Bahrain, Emirates, Arabia, Oman, Saudi, Yemen, Palestine, Qatar, Tunisia, Iraq, Algeria, Kuwait, Morocco, Lebanon, Libya and Egypt. The report highlighted that 69% of Arab banks were still deciding on the type of digital currency they want to issue. Additionally, 25% expressed interest in adopting multiple types of digital currencies, including hybrid, wholesale, and direct retail CBDCs.
Apart from the UAE, other MENA countries like Egypt and Morocco are exploring the potential of CBDCs. In 2021, the Central Bank of Egypt initiated a study on the technical and strategic aspects of CBDCs issued by central banks and their potential impact on local economies and payment systems
Final Thoughts
The United Arab Emirates has launched the first phase of its CBDC program, the digital dirham, which includes joint research on cross-border payments and multi-CBDC transactions, proof-of-concept work for bilateral and domestic CBDC issuance, and a focus on boosting financial inclusion. The UAE’s CBDC initiative is expected to accelerate its digitalization journey and strengthen its position as a leading global financial hub.