UAE’s ‘digital dirham’ opens door to new innovation

The Central Bank of the UAE (CBUAE) published a report into its plans for a digital dirham last month, outlining the legal, technical and policy foundations for the digital currency to become legal tender ahead of the launch which is expected between October and December this year.

Jessica White, an expert in financial regulation and fintech at Pinsent Masons, said: “Institutions that act early will be best positioned to shape the digital dirham ecosystem and capture first-mover advantages in retail, wholesale, and cross-border payments.”

“Companies need to understand how to integrate with the CBUAE’s issuance platform and prepare wallet infrastructure for onboarding. The opportunity is not just to comply, but to innovate,” she added.

The CBUAE said in its report that the new currency would “enhance payment system efficiency, increase monetary policy effectiveness, and enable new digital economy applications”.

The report is particularly relevant to licensed financial institutions (LFIs), financial technology firms, government entities, and legal and compliance professionals. For LFIs and fintechs, the report signals readiness to onboard digital dirham wallets and engage with the CBUAE’s issuance platform - which will require new strategic approaches to support the currency’s integration.

The introduction of the new currency also opens the door to opportunities such as fractional ownership of tokenised assets – effectively allowing for customers to buy small parts of high value assets. The CBUAE also points to the initial pilot programmes for the currency to highlight how it allows for transparency and efficiency in transactions.

Chowdhry added: “The CBUAE’s policy paper confirms the digital dirham’s legal tender status and outlines a phased rollout, placing LFIs and payment service providers at the centre of distribution and innovation. The digital coin is the flagship initiative of the CBUAE’s Financial Infrastructure Transformation (FIT) programme, which is designed to modernise the UAE’s financial systems and lead the way in payment innovation across the Middle East..”

The rollout of the new currency comes after two years of preparation by the CBUAE to establish the legal and policy structures needed to support the digital dirham’s integration, and means legal and compliance teams in the UAE must update their own internal frameworks to reflect its legal tender status, along with developing robust compliance systems for regulation.

“The digital dirham has been designed with interoperability at its core. The wallet infrastructure is intended to support domestic and international transfers, cash redemption, top-ups, and programmable disbursements - all through a user-friendly interface built for mass adoption, yet technically robust enough to integrate with emerging global networks.  Uptake of the digital currency and its real world uses remains to be seen, but it is an interesting time to be advising in the payments space”, Chowdhry noted.

Earlier this year the UAE allowed cryptocurrency to be used to pay salaries for workers in Dubai, opening the door for companies and institutions to explore new business models enabled by the currency.