Key Takeaways
The CBUAE mandates that stablecoin issuers fully back their tokens with cash reserves held in UAE banks.
If fully implemented, the AED stablecoin could be used as a trading pair for cryptocurrencies on exchanges
The Central Bank of the United Arab Emirates (CBUAE) has given in-principle approval for an AED stablecoin, marking a significant step toward incorporating digital currencies into the nation’s financial ecosystem. The stablecoin pegged to the UAE dirham, it provides businesses and consumers with a more reliable digital asset for transactions. This development is expected to enhance both national and international money transfers, reducing transaction costs and improving efficiency across the financial system.
As part of its regulatory framework, the CBUAE mandates that stablecoin issuers fully back their tokens with cash reserves held in UAE banks. Alternatively, they can hold a portion of their reserves in government bonds or CBUAE Monetary Bills to ensure financial security. This approach promotes transparency and stability within the country’s growing crypto market.
If fully implemented, the AED stablecoin could be used as a trading pair for cryptocurrencies on exchanges and decentralized platforms. It could also allow merchants to accept digital payments in dirhams, further integrating digital currencies into everyday commerce.
Despite the early approval of the AED stablecoin, competition is already on the horizon. Tether, the largest stablecoin issuer globally, has partnered with UAE firms to introduce its own dirham-backed stablecoin.
The CBUAE’s framework prioritizes fully backed assets, ruling out algorithmic stablecoins and privacy-focused tokens. By establishing clear rules for stablecoin issuers, the central bank aims to ensure consumer protection and promote confidence in the UAE’s evolving fintech landscape.
Dubai has been trying to position itself as a crypto hub, in recent years. The Emirate has granted full regulatory approvals to leading cryptocurrency exchanges such as Binance, OKX, and Crypto.com. Last month, Dubai’s Court of First Instance made a ruling, recognising payment of salaries in crypto under employment contracts. Recently, M2 has opened a new system that allows residents to directly convert dirhams into Bitcoin and Ether.
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