The Central Bank of the UAE has announced plans to introduce the initial phase of the digital dirham, signalling a significant development in the country’s financial landscape.
According to the central bank, the digital currency will enable real-time settlement of transactions, improve the flow of funds and payments, and expand access to digital financial services.
The initiative will be made available free of charge to individuals and small and medium-sized enterprises, with users able to conduct financial transactions without incurring any fees during the first phase.
The Digital Dirham is a central bank digital currency, meaning it represents a direct liability of the Central Bank of the UAE rather than commercial banks. It is fully interchangeable with physical dirham cash and bank deposits and has been designed as a non-interest-bearing instrument to function primarily as a payment tool rather than a savings product.
From a technical perspective, the digital dirham is built on a secure distributed-ledger, or blockchain-style, infrastructure. This allows for instant and atomic settlement of transactions while ensuring high standards of security and data protection. The architecture is intended to reduce payment costs, lower counterparty risks and support the development of new digital financial services.
The Central Bank of the UAE has been researching and piloting the digital dirham since 2019, beginning with exploratory work on cross-border and wholesale central bank digital currency use cases. A key milestone was achieved through Project mBridge, a multi-central-bank platform developed with the BIS Innovation Hub and authorities in Hong Kong, Thailand and mainland China, where the UAE conducted real-value cross-border payments using the digital dirham at the minimum viable product stage.
In January 2024, the central bank issued the first digital dirham as legal tender on its issuance platform and used it to execute a cross-border payment on the mBridge MVP, demonstrating live settlement using the UAE’s central bank digital currency. In parallel, a retail pilot was carried out to test real-world domestic use cases, helping evaluate the technology, design options and overall user experience.
