The United Arab Emirates (UAE) has become the latest country to announce plans to issue a Central Bank Digital Currency (CBDC). The move comes as part of the country’s wider efforts to promote digital payments and accelerate its transition towards a cashless society.
CBDCs are digital versions of fiat currencies, issued and backed by central banks. They are designed to function as a secure and reliable medium of exchange, offering all the benefits of cashless transactions while providing a level of security and trust that traditional digital payments may not offer.
The UAE Central Bank has announced that it is working on a pilot project to issue a digital version of the UAE’s national currency, the dirham. The digital dirham will be used in parallel with physical cash and will be issued to banks, financial institutions, and other licensed payment service providers.
The digital dirham will be built using Distributed Ledger Technology (DLT), the same technology that underpins cryptocurrencies like Bitcoin and Ethereum. However, unlike these cryptocurrencies, the digital dirham will be fully backed by the UAE Central Bank and will be subject to strict regulatory oversight.
One of the main objectives of the digital dirham is to promote financial inclusion and reduce the country’s reliance on cash payments. According to the UAE Central Bank, adopting digital payments is essential for the country’s economic growth, and the digital dirham is expected to play a key role in facilitating this transition.
The digital dirham will be accessible through mobile devices and will offer a range of features such as fast, secure and low-cost payments, peer-to-peer transfers, and micropayments. The digital currency will also be integrated with existing payment systems, allowing users to make payments at point-of-sale terminals and online merchants.
The UAE is not the only country to explore the potential of CBDCs. Several other countries, including China, Sweden, and the Bahamas, have already launched their own digital currencies, while others, such as the United States and the European Union, are currently exploring the possibility of issuing a CBDC.
Overall, the launch of a digital dirham in the UAE is an important step towards a cashless society, and one that is likely to have significant implications for the country’s economy and financial sector. With its focus on promoting financial inclusion, reducing cash usage and boosting digital payments, the digital dirham is set to play a key role in the UAE’s ongoing efforts to modernize its economy and build a more sustainable and resilient financial system.