Dubai, located in the United Arab Emirates (UAE), is one of Asia’s major crypto hubs: today the central bank of the UAE (CBUAE) made the launch of the Digital Dirham project official, which is the CBDC of Dubai, Abu Dhabi, and the other UAE emirates.
This is obviously not an actual cryptocurrency, because it will not be decentralized by any means, however the Digital Dirham will be the UAE’s natively digital currency.
Crypto news: the CBUAE’s statement on the new CBDC in Dubai
Today’s official communiqué from the UAE’s central bank states that through a partnership with G42 Cloud and R3 it has begun the implementation of the so-called “Central Bank Digital Currency Strategy,” which is one of the nine initiatives of the CBUAE’s Financial Infrastructure Transformation (FIT) program.
G42 Cloud and R3 will provide the infrastructure and technology for the Digital Dirham.
The statement also refers to some successful tests already conducted in past years with neighboring Saudi Arabia.
It mentions the possibility of using a digital currency issued by two Central Banks, to settle cross-border payments, and the first cross-border CBDC pilot project in collaboration with the Hong Kong Monetary Authority, the Bank of Thailand, the Digital Currency Institute of the People’s Bank of China, and the Bank for International Settlements (BIS).
The first phase of CBUAE’s CBDC Strategy is expected to be completed in 12 to 15 months, and consists of the launch of mBridge to facilitate cross-border CBDC transactions for international trade settlement, particularly with India.
So at this stage, Emirati citizens will not be directly involved, as was done in China. After all, the success of the Chinese digital yuan has not been significant at all, to the extent that its existence is now almost forgotten.
Evidently, from that experience, the CBUAE deduced that the main use of CBDCs could be precisely to facilitate multi-currency monetary exchanges between central banks of different countries, or at any rate for international trade payments.
The statement states:
“As part of the UAE’s digital transformation, CBDC will help address the pain points of domestic and cross-border payments, enhance financial inclusion and the move towards a cashless society.
It will further strengthen the UAE’s payment infrastructure, providing additional robust payment channels, ensuring a resilient and reliable financial system.
More importantly, the CBUAE aims to ensure the readiness of the UAE to integrate the payment infrastructures with the future potential tokenization world, the tokenization of the financial and non-financial activities.”
The most interesting passage in the entire statement is probably the one about tokenization.
In fact, it suggests that the technological infrastructure behind the Digital Dirham will also enable the issuance of new tokens, perhaps as digital certificates representing physical or digital objects, or their ownership.
Until now, there has been no talk of using CBDCs to tokenize things, because to be able to do so requires more than just the central bank being able to issue tokens on the underlying infrastructure of these digital currencies.
It is worth noting that such an infrastructure will probably not be a blockchain, because it will certainly not be decentralized and therefore does not need technology to enable decentralization.
Then again, if the UAE, and Dubai in particular, wants to remain a leader in the crypto sector, it must necessarily also structure itself to be able to provide financial services to support tokenization.
The comment of CBUAE Governor
Khaled Mohamed Balama, governor of the CBUAE, said:
“CBDC is one of the initiatives as part of the CBUAE’s FIT programme, which will further position and solidify the UAE as a leading global financial hub. The lauch of our CBDC strategy marks a key step in the evolution of money and payments in the country. CBDC will accelerate our digitalisation journey and promote financial inclusion. We look forward to exploring the opportunities that CBDC will bring to the wider economy and society.”
CBDCs around the world: “state crypto assets” beyond Dubai (UAE)
By now, several initiatives are underway in different parts of the world involving the creation and use of natively digital central bank currencies.
However, to date there are more failures than successes, because the few successful initiatives in this regard, such as the one in China, have not been well received by users at all.
Probably weighing heavily is the fact that CBDCs not only lack anonymity, but more importantly that they actually allow central banks to know precisely and accurately all money movements made by citizens.
Those who particularly value their privacy, and ultimately their freedom, do not like CBDCs at all, because they are perceived as an attempt to spy on their money movements.
Moreover, if authoritarian regimes such as China’s are behind these attempts at “spying,” it is easy to see that citizens do not like the use of CBDCs at all.
Instead, the CBUAE’s approach seems slightly different, because it does not seem to be aimed at the use of the digital Dirham by its citizens, but to handle in an easier way more complex issues such as cross-border payments, and to pursue innovations such as tokenization.