Initiatives around central bank digital currencies (CBDCs) have gained attention in recent months as banking authorities attempt to simplify cross-border transactions and spur innovation in the payments industry.
Regulators in Asia, Europe and South America are increasingly interested in implementing virtual currencies issued by their respective governments. In the Gulf region, the central bank of the United Arab Emirates is looking to launch a digital currency for domestic and international use.
The launch of the digital version of the UAE's national currency is part of the initial phase of the program's Financial Infrastructure Transformation (FIT). The central bank is developing nine initiatives for its CBDC. The CBUAE announced on Sunday that the measures will include a local card scheme, a fast payment platform, a financial cloud and a state-of-the-art surveillance system. After the initial phase, the campaign will include an innovation center and an e-Know Your Customer gateway.
Khaled Balama, governor of the central bank, welcomed the proposal. He said that FIT represents the goals and aspirations of the UAE leadership for the digitalization of the economy and the development of the financial sector. This month, Dubai’s Virtual Assets Regulatory Authority (VARA) released a market-wide product regulatory template that provides parameters for virtual asset activity in the region.
The guidelines restrict the production of "anonymity-enhancing cryptocurrencies" (sometimes referred to as "privacy coins") and all activities related to them.
A CBDC is a digital version of the money we use today, but it is issued and controlled by a central bank, such as the Federal Reserve or the European Central Bank.
It can be used like currency to buy products and services, but instead of sitting in your wallet, it exists in digital form that you can access from your smartphone or computer.
Despite technical challenges, central banking institutions around the world have been pushing for the creation of CBDCs to provide an alternative to crypto assets.
The Bank of England and the Treasury have outlined a blueprint for creating a new central bank currency, including a state-backed digital pound that could be deployed in the coming years. Last October, the UAE Central Bank and other regulators, notably the People’s Bank of China’s Digital Currency Research Institute, conducted the world’s largest pilot CBDC transaction.
In a recent analysis, the Boston Consulting Group predicted that the UAE’s payments industry revenues will increase to $19 billion by 2031, driven largely by the country’s tech-savvy workforce.
