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The United Arab Emirates (UAE) is preparing to launch a central bank digital currency (CBDC) for retail and wholesale use, as announced by the Central Bank of UAE (CBUAE). The implementation strategy for the digital dirham began with a signing event on March 23 involving technology providers R3 and G42 Cloud. R3 is a prominent CBDC tech developer with experience in Bank of International Settlements (BIS) projects, while G42 Cloud is part of the AI holding company G42, which has previously collaborated with OpenAI on financial services technology.

The first phase of the UAE CBDC implementation is part of nine initiatives in the CBUAE’s Financial Infrastructure Transformation (FIT) Programme and includes three pillars to be developed over the next 12 to 15 months. The soft launch of mBridge will enable real-time cross-border transactions to settle international trades, and the central bank recently completed its first cross-border transaction using the digital dirham and Chinese digital yuan. The next steps involve proof of concept work on CBDC bridges with India and domestic CBDC use cases for retail and wholesale payments.

In addition to improving payment infrastructure, CBUAE believes that implementing a digital dirham will prepare the country for a potential future where blockchain-based tokens are widely used for financial and non-financial purposes. Governor H.E. Khaled Mohamed Balama stated that the CBDC will accelerate the nation’s digitalization journey and promote financial inclusion. The move towards a digital dirham aligns with the UAE’s strategy to embrace digital technologies and stay ahead in the evolving financial landscape.

The initiative to launch a CBDC in the UAE is part of a broader trend among countries exploring digital currencies, with all founding members of BRICS and new members like Saudi Arabia, Iran, and the UAE developing wholesale CBDCs. This reflects a global shift towards digital currencies and the increasing adoption of blockchain technology in the financial sector. The UAE’s collaboration with leading technology providers and its focus on cross-border transactions and financial inclusion demonstrate a proactive approach towards embracing digital innovation in the banking sector.

The decision to introduce a digital currency in the UAE is driven by the objective of addressing key challenges in domestic and cross-border payments, enhancing financial inclusion, and promoting a move towards a cashless society. By leveraging blockchain technology and partnerships with established tech companies, CBUAE aims to position the country at the forefront of financial innovation and pave the way for a tokenized economy. The recent joint venture launched by Bridge Tower Capital and Deus X to build digital asset infrastructure in the UAE further underscores the growing interest in institutional crypto adoption in the region.

Overall, the implementation of a central bank digital currency in the UAE represents a strategic move towards modernizing the country’s financial ecosystem and embracing digital transformation. By laying the foundation for a digital dirham and collaborating with key players in the technology industry, CBUAE aims to unlock new opportunities for economic growth, financial inclusion, and innovation in the digital economy. This initiative reflects the UAE’s commitment to staying competitive in the global financial landscape and harnessing the potential of blockchain technology to shape the future of payments and financial services.

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