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The Central Bank of the United Arab Emirates’ (CBUAE) detailed progress report on the development of the digital dirham outlines its hopes for the central bank digital currency (CBDC).
Unlike the US, which has reiterated its opposition to CBDCs, the UAE sees the digital dirham as a key part of its broader strategy to modernise the country's monetary framework and accelerate the digital transformation of its economy.
The CBUAE’s progress highlights the central bank’s achievements to date under its Financial Infrastructure Transformation (FIT) programme.
These include the design, testing and implementation of the core infrastructure for issuing and distributing the digital dirham, which the CBUAE has confirmed will be launched soon.
The CBDC will be distributed through a two-tier system, with licensed financial institutions (LFIs) and authorised fintechs acting as intermediaries.
These entities will issue digital wallets to users and facilitate payments, with the CBUAE maintaining control over issuance, ledger validation and core monetary policy functions.
The CBUAE said the digital dirham is being developed in line with the standards set by global bodies such as the Bank for International Settlements (BIS).
It added that the CBDC will offer a secure, accessible and programmable alternative to cash for both domestic and cross-border use.
“The Digital Dirham represents one of the CBUAE’s key strategic initiatives shaping the future of financial services in the UAE and marks an important achievement in the global development of central bank digital currencies,” H.E. Khaled Mohamed Balama, governor of the CBUAE, said.
In the report, the CBUAE also underlined its commitment to a phased and carefully managed rollout, emphasising aspects such as technological resilience, policy alignment and market confidence.
The report follows a successful real-value retail pilot, which assessed the digital currency’s performance and user experience.
It builds on prior cross-border pilot projects such as Project Aber with the Saudi Central Bank and Project mBridge with multiple central banks in Asia, demonstrating the UAE’s growing leadership in global CBDC experimentation.
“The Digital Dirham will help ensure a secure and efficient financial infrastructure for the UAE, enhance the efficiency of our payment ecosystem, support monetary stability, expand financial inclusion, and strengthen the international standing of the UAE Dirham,” the governor added.
He went on to say that the regulator “will continue to rigorously assess the design and development of the digital dirham to ensure its successful rollout and transformational impact through a consistent and prudent approach.”
What are the UAE’s intentions?
The digital dirham has several objectives, which go beyond the ambitions of comparable projects such as the European Central Bank’s (ECB) digital euro.
For example, in addition to reduced transaction costs and financial inclusion for underserved communities, the digital dirham is expected to support monetary policy transmission.
“The introduction of a non-remunerated Digital Dirham will expand access to non-cash central bank money to the general public, which could impact monetary policy transmission channels if it influences saving and borrowing decisions,” the report says.
“Thus, the design of the Digital Dirham must contribute to the stability of the national currency (i.e., through the longstanding US Dollar peg) and the continuity of the monetary framework.”
Because the CBDC is designed to function offline, support smart contracts and enable cross-border payments, it is also intended to bolster the UAE’s position as a leading financial hub in the region.
The CBUAE said that it has conducted a legal and regulatory gap analysis and is working with relevant authorities to ensure full legal protection of the digital dirham.
In October 2023, the UAE its Central Bank Law to recognise CBUAE-issued digital currency as legal tender, with subsequent regulations set to address interoperability, liability and wallet provider oversight.
Risks ahead
Although the digital dirham offers significant potential benefits, the CBUAE acknowledged the risks associated with introducing a CBDC and outlined its plans to address them.
To preserve financial stability, the central bank will implement tiered holding limits and ensure that the digital dirham remains non-remunerated, discouraging its use as a store of value and reducing the risk of deposit outflows during times of financial stress.
In terms of monetary policy, the regulator said that the digital dirham will be fully interchangeable with cash, bank deposits and central bank reserves.
This should ensure that there is consistency across all forms of central bank money and avoid disruption to monetary policy transmission.
Privacy is also a key consideration. Although user pseudonymity will be maintained, the CBUAE said that robust know-your-customer (KYC) and anti-money laundering (AML) safeguards will be enforced by intermediaries, not the central bank, to support traceability and support law enforcement when necessary.
To address cybersecurity and operational risks, the CBUAE said that the digital dirham will run on a private, permissioned distributed ledger, to provide a secure, scalable and resilient foundation while protecting user data and maintaining system integrity.
The central bank said it will continue working with financial institutions, government bodies and industry stakeholders as it prepares to launch the digital dirham in both retail and wholesale forms.
“By taking a precautionary and collaborative approach to implementation, the CBUAE is increasing the likelihood of the Digital Dirham achieving its full potential,” the report concludes.
“The Digital Dirham was developed with a focus on ensuring that benefits outweigh potential risks, with ongoing reviews to further mitigate risks and ensure successful implementation. The CBUAE will continue to assess the impact of implementing the Digital Dirham and will adjust its design as needed.”
A very different approach to the US
No doubt unintentionally, the CBUAE published its report at the same time as the US released its white paper on the road ahead for crypto-assets.
The report confirmed the US position on CBDCs, which is markedly different to what the CBUAE has outlined.
Committing to a national prohibition and pledging to campaign against CBDCs internationally, the US report says that “CBDCs consolidate government control of personal financial information, severely compromising individual economic and privacy rights.”
It goes on to argue that, “Combined with the potential incorporation of smart contracts, retail CBDCs could effectively turn fiscal policy over to unelected monetary authorities and could be used to channel resources away from certain activities and toward others at the whims of those authorities.”.
There is a core philosophical divergence here, and one that could drive a wedge between the US and jurisdictions such as the EU and UK, should they adopt a CBDC.
The CBUAE views CBDCs as beneficial and a public good – a digital extension of cash designed to improve financial inclusion, bolster payment system efficiency and reinforce public trust in central bank money.
The digital dirham initiative is grounded in the belief that a well-designed CBDC can support innovation and economic transformation while maintaining monetary and financial stability.
In contrast, the US position as outlined in the recent policy report frames CBDCs as a threat to privacy, financial freedom and national sovereignty.
The CBUAE is embracing a centralised, state-backed digital currency model as a tool for progress, whereas the US is rejecting retail CBDCs outright in favour of market-based solutions such as stablecoins.
Where the UAE sees opportunity for inclusion and innovation, the US sees risk and overreach, highlighting the broader divide between jurisdictions pursuing state-led digital innovation and those opting for decentralised, privately-issued solutions.
