Overview
The Central Bank of the United Arab Emirates (UAE) is spearheading the adoption of a Central Bank Digital Currency (CBDC) within the country, known as the digital Dirham. In a recent report titled “The digital assets innovation opportunity in MENA” by EY, it was revealed that all UAE licensed financial institutions (LFI) are expected to integrate with the Central Bank UAE node for issuing digital Dirham by 2026.
Digital Dirham Pilot and Integration
Banks, payment processors, and FinTech companies participating in the Digital Dirham pilot are required to demonstrate their readiness for integration with the CBUAE Digital Dirham issuing node. These entities must also develop use cases in a sandbox setting as part of the pilot process. The Central Bank’s move towards digital currency is aimed at enhancing financial inclusion, promoting innovation, and improving efficiency within the UAE’s financial sector.
CBDC Adoption Across MENA Region
EY’s report highlights the significance of CBDC adoption in the Middle East and North Africa (MENA) region, as countries like Tunisia, Egypt, UAE, Qatar, Ghana, and Saudi Arabia are currently engaged in active CBDC pilots. Meanwhile, regulatory studies are ongoing for Oman, Iraq, Jordan, Morocco, and Algeria. The potential market for digital assets globally is estimated to be worth over US$1.3 trillion. In the MENA region alone, tokenization can add an additional US$230 billion annually to the GDP, according to the World Economic Forum.
BRICS’ Independent Payment System and CBDC
The BRICS (Brazil, Russia, India, China, and South Africa) group of emerging economies has introduced Saudi Arabia, the UAE, Iran, Egypt, and Ethiopia as new members in 2024. The bloc aims to establish an independent payment system based on digital technologies and blockchain. Russia’s Kremlin aide Yury Ushakov mentioned that the goal is to create a cost-effective, convenient, and politically neutral payment system for governments, people, and businesses.
Hong Kong’s Digital Asset Initiatives
Hong Kong is also making strides in the digital asset space. The latest budget includes plans to launch a stablecoin sandbox for issuers, and to expand its digital dollar, Web3 initiatives, tokenized bonds, and the testing of China’s digital yuan. The Hong Kong Monetary Authority (HKMA) has completed the first phase of the e-HKD pilot program, focusing on tokenized deposits, offline payments, and programmable payments. The second phase will soon commence to explore additional use cases.
CBDC Implementations in MENA Region
The findings from EY’s report, as well as the strategies of BRICS nations and ongoing projects in Hong Kong, suggest that CBDC implementations in the MENA region are likely to rise. The UAE is expected to be one of the first countries within the region to witness the adoption of CBDCs, following the lead of the Central Bank of the UAE. This move towards digital currencies will contribute to financial inclusion, innovation, and efficiency within the MENA region’s financial sector.
