On Thursday, the central bank of the United Arab Emirates (CBUAE), published a press release regarding its upcoming central bank digital currency (CBDC). The recent update is a follow-up on the central bank’s CBDC plan which was revealed in February.
In a recent press release, the central bank launched a new strategy that would provide the infrastructure and technology for the issuance of its CBDC called ‘digital dirham.’
According to the press release, the development of the UAE’s CBDC, under ‘The Digital Dirham’ strategy, is part of the nine key initiatives in the country’s Financial Infrastructure Transformation (FIT) Program. Reportedly, the first phase of this strategy is expected to take place in the coming 12 to 15 months. Sources reveal that it includes three major pillars:
- The soft launch of mBridge for real-value cross-border CBDC transactions in international trade settlements
- Proof-of-concept (PoC) for CBDC bridges with India
- PoC for domestic CBDCs in wholesale and retail
Khaled Mohamed Balama, the Governor of the CBUAE, also shared his opinion regarding the UAE’s plans for CBDC. He said:
CBDC is one of the initiatives as part of the CBUAE’s FIT program, which will further position and solidify the UAE as a leading global financial hub. (…) The launch of our CBDC strategy marks a key step in the evolution of money and payments in the country.
Now looking back at the trail of events by UAE for its CBDC in the past few weeks, we see that the nation is actively pursuing its plan. In February, the CBUAE announced its FIT program, wherein the digital Dirham was marked as a priority. The central bank had also looked up to the CBDC for promoting financial inclusion.
After that in mid-March, the central bank signed a Memorandum of Understanding (MoU) with the Indian central bank, the Reserve Bank of India (RBI). The MoU stated that the central banks would jointly conduct a PoC and pilots of a bilateral CBDC bridge to facilitate cross-border CBDC transactions of remittances and trade. In the instance, the central banks said that the bilateral CBDC would also enhance efficiency and transparency.
However, as the popularity of CBDCs is increasing, it has also become a topic of debate in some countries, specifically the United States. Recently, Republican lawmaker, Tom Emmer, opined that CBDC poses a danger to American ideals of privacy, individual autonomy, and free markets. Additionally, he said that it could be “easily weaponized” into a surveillance tool for spying on American citizens, whereas the Bank of America says CBDCs could revolutionize money.
To this Emmer also introduced the CBDC Anti-Surveillance Act, which seeks to prevent the government from using the digital dollar as a tool for surveillance. He explains that the bill has three primary aims, including prohibiting the Fed from issuing a CBDC directly to anyone, barring the Fed from using a CBDC to implement monetary policy and control the economy, and requiring full transparency to Congress and US citizens for the Fed’s CBDC projects.
Similar is the case in the United Kingdom, in early February, the Bank of England and the British Treasury released a formal consultation paper to create the pathway for the rollout of a CBDC that could operate alongside the region’s fiat currency. While Jeremy Hunt, the chancellor of the exchequer, and Andrew Bailey, governor of the Bank of England, say that the government could still decide against a CBDC; the consultation paper argues that a digital Pound will be needed at some point in the future.
Nonetheless, the expansion of CBDCs is too big to ignore as international agencies like SWIFT and the Bank of International Settlements (BIS) are designing and experimenting with tools to facilitate transactions in CBDCs. A few weeks back, BIS also finalized the project ‘Icebreaker’ that explores the potential advantages and challenges of using CBDCs in international payments in partnership with the central banks of Israel, Sweden, and Norway.