The Central Bank of the United Arab Emirates (CBUAE) has approved new regulations for stablecoins, enabling it to integrate Dirham-backed digital currencies into its financial ecosystem.
A new system has now been issued in the UAE which will license and oversee stablecoins, following approval by the board of directors at the CBUAE.
The decision also aligns with the UAE’s Financial Infrastructure Transformation (FIT) programme, which it launched in February 2023 to make the nation more competitive and ultimately become a financial and digital payment hub. Following these aims, the latest stablecoin initiative hopes to boost digital transactions, advance the local digital economy and encourage innovation.
The Dubai Financial Services Authority (DFSA) also amended its Crypto Token regime in June. Ian Johnston, chief executive of the DFSA, discussed the changes: “At the DFSA, we have taken a balanced approach in the development of this regime and remain committed to evolving it in line with global best practices and standards.”
So far, a proactive approach to regulations has proven successful, with clarity enabling innovation and making the region an attractive prospect for firms operating elsewhere. But what is the significance of its latest decision regarding stablecoins? What could it mean for the future of the financial ecosystem, for the crypto space in the region, and the future of a UAE CBDC? To find out, we asked a number of financial leaders.
Middle Eastern ‘MiCA moment’?
Matt Green, head of blockchain and digital assets disputes at Lawrence Stephens
“It may be that the UAE is having its MiCA moment, which was the EU’s response to the issuance of stablecoins,” explains Matt Green, director and head of blockchain and digital assets and technology disputes at London-based law firm Lawrence Stephens.
“Here there are some ground rules which are helpful and may have a wider impact on how stablecoins are generated and considered globally – Dirham-backed and clearer criteria for defining stablecoins.
“The UK government may be prompted to take action – Britcoin progression has been limited, assumedly following more immediate political issues, and the market’s eyes may continue to turn East where innovation continues to climb.”
Enabling innovation and a future CBDC?
“First of all, we must recognise the MENA region’s impressive commitment to regulatory clarity,” says Sonia Shaw, president of digital asset exchange CoinW. “So many web3 companies are there because they feel regulators want to work with them, not against them. With exchanges and startups leaving the US and Europe over legal fears, the new regulation makes the UAE even more appealing.”
Sonia Shaw, president of CoinW
The CBUAE has already unveiled plans to issue a central bank digital currency (CBDC) as part of the FIT programme. This decision regarding stablecoins could not only have an impact on the crypto world, but also be important for the development of a CBDC, explains Shaw:
“Stablecoin regulation will also improve the crypto industry’s perception worldwide. The UAE will now be able to monitor and manage potential risks associated with liquidity, market volatility, and operational shortcomings. Clear compliance pathways will undoubtedly attract more institutional and retail investors by demonstrating the sector’s maturity.
“Finally, I expect that these stablecoin regulations will serve as a testing ground for future regulatory approaches that can later be applied to a UAE CBDC. It’d be a surprise if this doesn’t become the next point of call. On a broader scale, stablecoin (and eventually CBDC) regulation fits into the picture of the UAE’s attempts to diversify its economy beyond oil and improve global payment efficiency.”
Solving pain points for UAE-based businesses
Although the news could well support the development of a CBDC, the impact it could have otherwise is still hugely significant regardless, says Stuart Connolly, CIO at Deus X Capital, an investment firm with operations in Dubai.
Stuart Connolly, CIO at Deus X Capital
“While the UAE already has a CBDC and has executed some cross-border payments using it, it is unlikely to receive widespread adoption by the digital assets industry due to the well-documented concerns market participants would have around privacy and surveillance.
“This regulation isn’t intended to change that in our view. The introduction of stablecoin regulation allows private enterprises to issue AED stablecoins while supporting the objectives of the state. We think this is the best approach to balance the needs of the state to control its financial system while fostering innovation in a rapidly growing industry.
“The advent of an AED stablecoin solves a long-standing pain point for businesses in the UAE, there has been great demand for real estate and other high-value purchases to be executed using digital assets. Up until now, those transactions have been expensive for the parties involved due to the lack of an AED stablecoin. Its introduction makes these transactions quicker and cheaper and we expect digital asset transactions for real estate and luxury goods purchases to become even more prevalent.
“Finally, the introduction of an AED-backed stablecoin opens up a huge opportunity for tokenising real-world assets priced in AED, such as financial products, which up until now has not been possible.
“In short, the demand for tokenised AED is already huge, and the introduction of clear regulation around AED stablecoins is a positive step as the UAE continues to be a global leader in the digital asset industry.”
A welcome boost for crypto?
Hani Abuagla, senior market analyst at XTB MENA, explains how the latest decision by the CBUAE could be positive for the development of crypto in the region.
Hani Abuagla, senior market analyst at XTB MENA
“The UAE’s recent approval of stablecoin regulations could significantly impact the crypto space. By providing a clear licensing framework, the UAE is lending legitimacy to stablecoins and encouraging their adoption in the region. This could attract more crypto companies to the UAE, positioning it as a hub for digital asset innovation.
“The regulations may also serve as a model for other countries, potentially leading to a more standardised global landscape for stablecoins.
“While there are risks of overly restrictive rules stifling innovation, regulated dirham stablecoins could boost institutional investment and become a key part of the UAE’s crypto infrastructure.”
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