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On July 31, 2025, the Central Bank of the UAE (CBUAE) released a comprehensive report detailing progress towards the introduction of the digital dirham.
The report reviews achievements to date, as well as the policy and design framework guiding the development of a secure, trusted and user-friendly central bank digital currency (CBDC) for individuals and businesses.
The UAE’s plan is to have the digital dirham up and running in late 2025, meaning that it will move ahead of other jurisdictions such as the EU with its digital euro project, as well Russia, now it has delayed the implementation of its digital ruble.
In recent years, the country has made significant progress when it comes to both its financial services sector and the digital economy.
In early 2024, it was removed from the Financial Action Task Force’s (FATF) grey list, boosting investor confidence and leading to improved international financial relationships.
In addition, its fintech market is estimated by the Dubai International Financial Centre to have reached $3.16bn in 2024, and is projected to grow to $5.7bn by 2029.
The country’s innovation-friendly policies and lenient tax regime have attracted significant international interest, including from the cryptocurrency and artificial intelligence (AI) sectors.
The bigger picture
The introduction of the digital dirham is part of the CBUAE’s Financial Infrastructure Transformation (FIT) programme, which was launched in 2023.
As part of this initiative, the CBUAE has already launched a cross-border application of the digital dirham and conducted a real-value retail pilot to evaluate its future design, technology and advantages.
It has also carried out key digital-economy use cases to assess the feasibility and effectiveness of the digital dirham.
The CBUAE’s digital dirham will follow an intermediated distribution model. This means it will be issued by, and remain a direct liability of, the central bank, but wallets, payments and customer interfaces will be managed by licensed financial institutions (LFIs) and fintechs with stored value facility (SVF) licences.
This hybrid approach is intended to balance public sector oversight with private sector innovation. This should help mitigate any disintermediation risks and enable financial institutions to create new products and services using the digital dirham’s capabilities.
Technologically, the digital dirham is built on a hybrid architecture combining account-based and token-based elements, with transactions recorded on a permissioned distributed ledger.
The intention here is to provide privacy protections through pseudonymity, while supporting traceability, compliance with anti-money laundering (AML) obligations and integration with existing financial and digital asset systems.
The CBUAE will retain control over issuance, redemption and ledger validation, while LFIs will share responsibilities for onboarding, customer service and product development.
Meanwhile, the digital dirham will be unremunerated, meaning it will not pay interest to holders, and the UAE has been clear that it is designed for payments rather than savings, with tiered limits for residents, businesses and tourists.
At the same time, the CBUAE is planning cross-border use via CBDC partnerships, targeting the MENA region in light of remittance and access issues.
Why should you care?
The launch of the digital dirham could significantly reshape the UAE’s domestic payments landscape, with major implications for the local payments ecosystem.
It will affect a broad spectrum of market participants, from fintechs and banks that operate locally to international card schemes such as Visa and Mastercard.
There is a chance that the CBDC may fail, given that countries such as China have been unable to gather momentum for their state-backed digital currencies.
However, the UAE seems to have a vision in place and is not wasting any time in bringing the digital dirham to market.
The CBUAE has been keen to emphasise that it wants to complement rather than replace the existing financial system.
Nevertheless, the new infrastructure could disintermediate parts of the payment value chain if payment service providers (PSPs) fail to adapt.
Cost is also a factor: the digital dirham is being launched partly to reduce the cost of digital payments for residents and businesses in the UAE.
Its launch could compress interchange fees, transaction charges and margins in what is a highly commoditised industry.
Visa and Mastercard could see local transaction volumes decline if users favour digital dirham wallets for point-of-sale, online and government payments, bypassing card rails through account-to-account (A2A) CBDC transactions.
Merchant acquiring services could also be disrupted if CBDC payments integrate directly into apps, QR codes or government services, as this could ultimately reduce reliance on card networks.
Although the card networks’ cross-border capabilities may still prove valuable, especially via multi-CBDC platforms such as the Bank for International Settlements’ (BIS) mBridge, their role could shift from running payment rails to enabling interoperability and compliance.
Despite the potential impact on the payments ecosystem, opportunities exist for firms willing to engage with the digital dirham.
Like the European Central Bank (ECB) and the European Commission, the CBUAE has encouraged PSPs and fintechs to build CBDC-enabled wallets and super apps that offer value-added services such as budgeting tools, remittance options and loyalty schemes.
The digital dirham’s programmability opens the door to automated payment flows, subscription models and conditional disbursements.
Firms could embed CBDC payments into merchant platforms and gig economy services, as well as develop cross-border CBDC remittance corridors.
The launch of the digital dirham should not be seen as a death knell for payments organisations as they exist today. However, with the UAE moving rapidly compared with other economies, the CBDC could fundamentally change their value proposition.
