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UAE central bank moves forward with CBDC implementation

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(Kitco News) - The Central Bank of the United Arab Emirates (CBUAE) announced that it has officially implemented its central bank digital currency (CBDC) strategy, which will ultimately lead to the creation of a digital dirham for domestic and cross-border payments.

The CBDC strategy is one of the nine initiatives developed by the CBUAE as part of its Financial Infrastructure Transformation (FIT) program. According to the central bank, “CBDC is a risk-free form of digital money issued and guaranteed by the central bank and serves as a secure, cost-effective and efficient form of payment and a store of value.”

G24 Cloud, a leading artificial intelligence and cloud computing company in Abu Dhabi, and R3, a leader in the digitization of financial services, took part in the signing ceremony and will serve as the infrastructure and technology providers for the CBDC.

The CBUAE previously trialed several CBDC initiatives, including Project Aber, which was conducted in conjunction with the Saudi Central Bank in 2020 and “confirmed the possibility of using a digital currency issued by two central banks to settle cross borders payments.”

It also conducted the first real-value cross-border CBDC pilot under the “mBridge” Project with the Hong Kong Monetary Authority, the Bank of Thailand, the Digital Currency Institute of the People's Bank of China and the Bank for International Settlements in 2022.

Now, the CBUAE is preparing to enter the next phase of the digital dirham rollout with the implementation of its CBDC strategy.

The first phase, which will take place over the next 12 to 15 months, has three goals: The soft launch of “mBridge,” which facilitates CBDC transactions for international trade, proof-of-concept work for bilateral CBDC bridges with India, one of the UAE’s top trading partners, and domestic CBDC issuance for wholesale and retail use.

The UAE is anticipating that the integration of a digital dirham will help address the pain points of domestic and cross-border payments, enhance financial inclusion, and help facilitate the move towards a cashless society.

“It will further strengthen the UAE's payment infrastructure, providing additional robust payment channels and ensuring a resilient and reliable financial system,” the central bank said. “More importantly, the CBUAE aims to ensure the readiness of the UAE to integrate the payment infrastructures with the future potential tokenization world, the tokenization of financial and non-financial activities.”

“CBDC is one of the initiatives as part of the CBUAE’s FIT programme, which will further position and solidify the UAE as a leading global financial hub,” said Khaled Mohamed Balama, the Governor of the CBUAE. “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.”

UAE to issue a CBDC for cross-border and domestic uses

CBDCs continue to be a popular topic of discussion and a focal point for governments around the world amid the recent shocks to the banking system. Nigeria has finally begun to see some uptake of its CBDC – the eNiara – after a shortage of physical cash has forced Nigerians to explore other payment options, including the digital Niara.

In the U.S., several lawmakers have pushed back against the creation of a U.S. dollar CBDC including Florida Governor Ron DeSantis, who has called for a ban on the creation of a digital dollar, Republican Senator Ted Cruz, who introduced a bill to block the Federal Reserve from launching a “direct-to-consumer” central bank digital currency, and Republican Rep. Tom Emmer, who introduced legislation that could prevent the Federal Reserve from directly issuing a central bank digital currency (CBDC).

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