UAE Set to Launch Digital Dirham This Fall
The Central Bank of the UAE (CBUAE) is gearing up to introduce its Digital Dirham central bank digital currency (CBDC) between October and December. This innovative digital token aims to enhance the security and efficiency of financial transactions while lowering the costs associated with both national and international payments. Additionally, the CBUAE has developed a user-friendly wallet to facilitate the management and utilization of the upcoming CBDC.
Understanding the Digital Dirham
A central bank digital currency (CBDC) is a digital version of a country’s fiat currency, issued on a blockchain. Each Digital Dirham token will hold the same value as its physical counterpart, ensuring consistency in transactions. The use of CBDCs will create permanent records on the blockchain, which enhances transparency in financial systems and reduces reliance on cash. The CBUAE has also unveiled a new symbol representing both the digital and physical versions of the Dirham. CBUAE Governor Khaled Mohamed Balama expressed optimism about the Digital Dirham’s potential to strengthen national financial stability and inclusion. He highlighted that the new currency will assist law enforcement in combating financial crime. “It will enable the development of innovative digital products, services, and new business models, while reducing costs and increasing access to international markets,” Balama stated in a prepared announcement.
How the UAE is Developing Its CBDC
The creation of the Digital Dirham is a crucial component of the CBUAE’s Financial Infrastructure Transformation (FIT) program, initiated in 2023. The central bank aims to modernize the financial system in the region through the implementation of “tokenisation” and “smart contracts” once the Digital Dirham is officially launched.
The UAE’s CBDC is designed to facilitate tokenisation and enhance liquidity access through asset fractionalisation. The central bank has indicated that the Digital Dirham will utilize smart contracts to automate complex transactions that involve multiple parties and stages. Individuals and businesses will be able to acquire the Digital Dirham through licensed financial institutions, including banks, exchange houses, finance companies, and fintech firms, depending on the activated use cases.
Holders of the Digital Dirham will have access to a government wallet system, enabling them to conduct retail, wholesale, and international payments, among other transactions, using the CBDC.
The Global Race to Launch CBDCs
The competition to develop and implement CBDCs has intensified globally in recent years. In India, CBDC trials are progressing rapidly, with various banks and merchants involved. Former RBI Deputy Governor T. Rabi Sankar noted last November that the central bank is taking a cautious approach to the rollout of the eRupee CBDC, ensuring a thorough assessment of its impact on financial systems.
Meanwhile, South Korea is reportedly preparing to initiate CBDC trials for real-world transactions soon. Other countries, including Hong Kong, Iran, Brazil, and China, are also actively working on their own CBDCs.
The International Monetary Fund (IMF) has introduced a framework called “REDI” to facilitate the deployment of CBDCs and promote their adoption. The IMF emphasizes the importance of raising awareness and understanding of CBDCs to encourage their acceptance in the global financial landscape.
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