UAE Central Bank Launches Digital Dirham Strategy to Enhance Financial Inclusion

The UAE Central Bank has signed an agreement with G42 Cloud and digital finance service provider R3 to implement its digital currency strategy, Digital Dirham, in preparation for the future of finance. The Central Bank’s strategy, one of nine initiatives launched as part of the Financial Infrastructure Transformation programme in February, aims to strengthen the country’s payment infrastructure and enhance financial inclusion. The move is a major milestone in the evolution of money and payments in the UAE, said Khaled Balama, Governor of the UAE Central Bank, and will accelerate the country’s digitalisation journey.

Digital Dirham will address the challenges of domestic and cross-border payments, further the move towards a cashless society, and provide additional channels to enhance the country’s payment infrastructure. A central bank digital currency (CBDC) is a digital form of a government-issued currency, which is similar to cryptocurrencies. CBDCs are expected to provide a more stable means of exchanging digital assets and reduce the risks associated with using cryptocurrency.

As of March 1, there are 65 countries that are in advanced stages of CBDC development. The UAE has been identified as one of the countries that have made the most progress in CBDCs in 2023, according to the US-based think tank Atlantic Council. The UAE Central Bank’s strategy aims to prepare the country to integrate payment infrastructures with the tokenisation world, and tokenise financial and non-financial activities. The implementation of Digital Dirham follows successful partnerships and initiatives with the Saudi Arabian central bank and the Hong Kong Monetary Authority.

Global tokenised payment transactions are expected to increase 47% to more than $1tn by 2026. The implementation of Digital Dirham seeks to take advantage of such developments to further solidify the UAE’s positioning as a leading global financial hub, according to Arun John, chief market analyst at Century Financial. The CBDC would help address issues holistically, including the maximum inclusion of the population in the banking system and reducing fraud and money laundering.