Today's Edition
ISIDORA CIRIC (ABU DHABI)
The UAE's long-anticipated digital currency will officially hit the market in the final quarter of 2025, the Central Bank of the UAE (CBUAE) has announced, setting the stage for a major shift in how residents and businesses make payments.
Described by the CBUAE as "a universal payment instrument", the digital dirham will be accepted across all payment outlets and channels, functioning as a legal tender alongside physical cash. It will be issued through licensed financial institutions such as banks, exchange houses, finance companies and fintechs.
Powered by blockchain technology, the digital dirham promises faster, cheaper, and more secure transactions for everyday use.
"It is anticipated that the digital dirham, as a blockchain-based platform with cutting-edge capabilities, shall substantially enhance financial stability, inclusion, resilience, and combatting financial crime," Khaled Mohamed Balama, CBUAE Governor, said in a statement on Thursday.
He added that it would also support new digital services and lower costs for accessing global markets.
The rollout will be supported by a dedicated platform built by the CBUAE for issuing, circulating and managing the digital dirham. The platform supports smart contracts and tokenisation, allowing for automated, instant execution of complex or conditional transactions, as well as easier access to liquidity.
The digital dirham also comes with its own wallet, the CBUAE statement added, designed to be intuitive, flexible and suitable for both personal and business transactions. It will enable users to perform retail and wholesale payments, cross-border transfers, top-ups, cash withdrawals, and convert digital dirhams back to physical AED. According to the Central Bank, the system is flexible enough to support emerging use cases as the digital economy grows.
Coupled with the CBUAE's recent adoption of the FX Global Code, this rollout will make the UAE one of the first countries in the region to offer a central bank digital currency (CBDC) to the public - but it's not the only initiative reshaping the dirham's digital future.
In parallel with the CBDC push, the Central Bank approved a licensing framework in 2024 to regulate stablecoins - digital tokens pegged to the dirham but issued by private companies.
Stablecoins aim to offer the stability of fiat currency without the price swings associated with cryptocurrencies like Bitcoin. This stability is important for everyday payments, where volatility could cause prices to fluctuate unexpectedly, turning a simple purchase like a sandwich into a speculative gamble for both buyers and sellers.
Tether, the world's largest stablecoin issuer, was quick to enter the UAE market after the framework's approval, announcing plans for a dirham-backed token in partnership with Phoenix Group and Green Acorn Investments.
"Tether's latest upcoming stablecoin is a digital representation of the United Arab Emirates dirham, with each token being fully backed by liquid UAE-based reserves," the company said in an announcement statement in August 2024. Tether's CEO, Paolo Ardoino, cited the country's position as a "significant global financial hub" and its favourable regulatory environment as factors that could skyrocket stablecoin adoption and expansion.
Another firm, AED Stablecoin, secured in-principle approval later in the year and has since launched AE Coin - the UAE's first officially approved dirham-backed stablecoin.
AE Coin is fully backed by Dirham reserves and must comply with stringent regulatory requirements.
This includes capital thresholds, asset reserve mandates (AE Coin should maintain a 1:1 reserve in Dirham for each token issued), and redemption guarantees, according to a recent analysis by TLP Advisors, titled "Securing Digital Finance: An Overview of the UAE's Payment Token Services Regulation."
While both the digital dirham and dirham-backed stablecoins serve as digital representations of the national currency, there's a key difference in who's behind them. The former is state-issued and carries the legal tender status, while the latter are private initiatives operating under the Central Bank oversight.
Together, they signal a broader shift in the UAE's approach to integrating finance and technology - one that could change the way people interact with the dirham for good.
