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UAE Central Bank To Announce Launch Of ‘The Digital Dirham’ Strategy | |
| Sumita Pawar |
A report says the UAE Central Bank has begun implementing its digital currency strategy, the Digital Dirham, as it prepares the country's infrastructure for the future of finance.
It signed an agreement with Abu Dhabi's G42 Cloud and digital finance services provider R3 to use them as the infrastructure and technology providers, respectively, for the launch of its central bank digital currency (CBDC), the regulator said in a statement on Thursday.
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Digital Dirham wants to fix the "pain points" of domestic and international payments, increase financial inclusion and the move towards a cashless society, and strengthen the UAE's payment infrastructure by adding more channels.
Money's future, according to the IMF, is itsIt's digital and backed by central banks; the strategy, one of the nine initiatives of the Financial Infrastructure Transformation programme launched by the Central Bank in February, will "further position and solidify the UAE as a leading global financial hub", said Khaled Balama, Governor of the UAE Central Bank.
"The launch of our CBDC strategy marks a key step in the evolution of money and payments in the country. "The CBDC will hasten our digitalization and promote financial inclusion," he said.
According to the report, a CBDC is a digital form of a government-issued currency.They are similar to cryptocurrencies, except that their value is fixed by the monetary authority and equal to the country's fiat currency.
CBDCs are expected to provide some middle ground for the highly volatile cryptocurrency market. They reduce the risks associated with using cryptocurrency and provide a stable means of exchanging digital assets.
"CBDC is a risk-free form of digital money issued and guaranteed by the central bank that serves as a secure, cost-effective, and efficient form of payment and store of value," according to the Central Bank.
According to the report, central banks around the world are looking into the development of digital currencies amid the growing popularity of cryptocurrencies as an asset class among retail and institutional investors.
The UAE has been identified as among 18 countries that have made the "most progress" in CBDCs in 2023, joining a list that includes Australia, Brazil, Canada, China, India, Japan, Jordan, Kazakhstan, Laos, Montenegro, the Philippines, Russia, Saudi Arabia, Turkey, Ukraine, the UK, and the US, it said.
"Countries that participate in the CBDC mechanism are better positioned to enjoy and reap the benefits of globalisation, as well as keep up with more recent international FinTech advances," said Arun John, chief market analyst at Century Financial.
Aside from boosting the competitiveness of the UAE as a "central FinTech hub", the CBDC would help address issues "more smoothly and holistically", including "ensuring maximum inclusion of the population in the banking system and reducing fraud and money laundering", he added.
The UAE Central Bank said its strategy aims to "ensure the readiness of the UAE to integrate the payment infrastructures with the future potential tokenization world and the tokenization of financial and non-financial activities".
Global tokenized payment transactions are expected to increase by 47 percent, to more than $1 trillion by 2026, from about $680 billion in 2022, according to data from Juniper Research.
The implementation of Digital Dirham comes as the UAE Central Bank enters the "next major milestone" of its CBDC strategy and after previous successful partnerships and initiatives, including Project Aber with Saudi Arabia's central bank in 2020 and the mBridge project for cross-border CBDC transactions for international trade settlements, it said.
According to the report, the mBridge initiative was launched last year in collaboration with the Hong Kong Monetary Authority, the Bank of Thailand, the People's Bank of China's Digital Currency Institute, and the Bank for International Settlements.
Last week, the UAE Central Bank and the Reserve Bank of India signed an initial agreement to boost cooperation and enable innovation in financial products and services, part of which is conducting proof-of-concept and pilots of a bilateral CBDC bridge to enable cross-border CBDC transactions in remittances and trade.
"We are excited to investigate the opportunities that CBDC will bring to the broader economy and society," Mr Balama said.