UAE central bank selects partners for phase one of digital currency programme

The UAE Central Bank (CBUAE) has launched its digital currency implementation strategy, which forms one of the key initiatives in its programme to digitise the country’s finance sector.

In February, as part of the announcement of its Financial Infrastructure Transformation (FIT) programme, the CBUAE said a digital currency was one of a list of nine projects, which also includes the country’s first card payment platform, an instant payments system.

The CBUAE has named financial services blockchain specialist R3 and UAE-headquartered cloud supplier G42 Cloud as infrastructure technology providers, with Clifford Chance providing legal services. A Central Bank Digital Currency (CBDC) is a digital coin issued by a central bank, linked to the country’s fiat currency. As such, it would always retain its value – unlike volatile cryptocurrencies – and would replicate the use of cash.

The CBUAE said a CBDC will eventually be applied across a range of domestic and cross-border use-cases in the Middle East region.

The first phase is expected to take place over the next 12 to 15 months. According to CBUAE, this will see the initiation of real-value cross-border CBDC transactions for international trade settlement, proof-of-concept work for bilateral CBDC bridges with India, and proof-of-concept work for domestic CBDC issuance covering wholesale and retail usage.

“As part of the CBUAE’s digital transformation programme, the implementation of the CBDC strategy will aim to address the pain points of cross-border payments, enhance financial inclusion and further strengthen the UAE's payment infrastructure,” said the CBUAE.

“The technological support of R3 will enable CBUAE to ensure the readiness of the UAE for the potential future tokenisation of financial and non-financial activities, in addition to the digitisation of other financial services.”

Payments made using CBDCs will grow from $100m this year to a massive $200bn in 2030. The startling numbers from Juniper research reveal a 260,000% increase over the next seven years.

Juniper said the CBDC sector is in its early stages of development with mainly pilot projects, but it expects government projects to boost financial inclusion and stimulate adoption. This will particularly be the case in emerging economies “where mobile penetration is significantly higher than banking penetration”.

David Rutter, CEO at R3, said the plan is another landmark moment in bringing CBDCs even closer to production and issuance. “CBDCs can strengthen our financial market infrastructure in several ways, including more efficient cross-border payments, faster settlement time periods and the streamlining of multi-party processes. The CBUAE has made a significant step forward in realising these benefits.”

Talal Al Kaissi, CEO at G42 Cloud, said this collaboration represents an important milestone in the digitisation of the UAE’s monetary and payments framework. “As a company founded in the UAE, we have seen first-hand the country’s rapidly advancing status as a global fintech hub, and are excited to be working with the CBUAE in leading its digital transformation.”

Meanwhile, Jack Hardman, head of fintech in the Middle East at Clifford Chance said: “As CBDC development moves from research to real-life building, it is vital that central banks are aware of the legal implications of any chosen design feature or strategy, in addition to how this emerging technology interacts with existing regulations.”