TL;DR

• UAE Central Bank is encouraging all UAE Commercial banks and payment processors to participate in pilot integration for CBDC digital dirham
• All UAE licensed financial institutions will adopt digital dirham by 2026
• Several countries in MENA have active CBDC pilots while others have regulatory studies underway

In a recent EY (Ernst &Young) report entitled, “The digital assets innovation opportunity in MENA”, EY notes that the Central Bank of the UAE is operationalizing its domestic CBDC, the digital Dirham and encouraging all UAE commercial banks and payment processors to participate in a pilot integration with the Central Bank UAE node for issuing digital Dirham.

The Central Bank regulator has also decreed Digital Dirham adoption by all UAE licensed financial institutions (LFI) by 2026.

As per EY in the immediate term, banks, payments processors and FinTech participating in the Digital Dirham pilot will need to demonstrate readiness to integrate with the CBUAE Digital Dirham issuing node, and to develop use cases in the sandbox.

Beyond the UAE Central Bank CBDC project, EY explains that most banks in the UAE are still adopting a wait and see approach. Commercial banks are concerned about the impact on their deposit base, and increased volatility in times of crisis. CBDCs are typically also designed to be non-interest bearing, and most commercial banks are still thinking through their business cases for supporting digital currencies.

Yet EY notes that it has developed several digital asset use cases beyond CBDC for financial institutions across MENA.

Additionally, several countries in the MENA region have active CBDC pilots. They include Tunisia, Egypt, UAE, Qatar, Ghana and Saudi Arabia. While in Oman, Iraq, Jordan, Morocco and Algeria regulatory studies are ongoing.

According to EY, digital assets represent a US$1.3 trillion market globally, with even the relatively small, tokenized assets forays from global banks so far driving US$3b in value. The World Economic Forum, claimed that tokenization can add US$230b annually to the MENA GDP.

All of this is happening at the backdrop of CBDC implementation across the globe including the BRICS (Brazil Russia India China South Africa) which now also includes countries such as the UAE and KSA.

BRICS is working to create an independent payment system based on digital currencies and blockchain. The Russian Kremlin aide Yury Ushakov, noted, “We believe that creating an independent BRICS payment system is an important goal for the future, which would be based on state-of-the-art tools such as digital technologies and blockchain. The main thing is to make sure it is convenient for governments, common people and businesses, as well as cost-effective and free of politics,” he said in an interview with TASS.

The BRICS group of emerging economies added five developing nations. Specifically, the bloc introduced Saudi Arabia, the United Arab Emirates (UAE), Iran, Egypt, and Ethiopia in 2024.

While Hong Kong continues to support digital assets, with the latest budget revealing plans to launch a stablecoin sandbox to support issuers. Presenting the budget, financial secretary Paul Chan delved into stablecoins, plans to expand the city’s digital dollar, Web3 initiatives, tokenized bonds, and an expansion of China’s digital yuan testing.

Additionally, Hong Kong’s central bank digital currency (CBDC) efforts are gaining momentum. On the domestic front, the HKMA completed the first phase of the e-HKD pilot program last year where it studied the feasibility of the CBDC in tokenized deposits, offline payments, and programmable payments. The second phase of the pilot “will soon commence” to explore other use cases.

On the regional front, the HKMA has been a vital member of the mBridge cross-border CBDC pilot alongside central banks in China, the UAE, and Thailand. The four central banks, working with the Bank for International Settlements (BIS), will launch the project’s first phase in 2024.

But that is not all, the Hong Kong Monetary Authority (HKMA) has launched a wholesale central bank digital currency (wCBDC) pilot, one of the world’s first such platforms for tokenized deposits, assets and central bank money. The HKMA will set up a so-called sandbox to provide a closed loop for a select group of participants to test their innovations – from concepts to trading and settlement. The sandbox is expected to kick off formally by June 2024. Hashkey Group, one of the first licensed cryptocurrency exchanges in Hong Kong, was the first to announce its participation in the wCBDC project.

Given the EY report findings, as well as the strategy of BRICS nations, including the ongoing projects in Hong Kong, it would seem that CBDC implementations in the MENA region will also start to rise with implementations soon to be witnessed in the UAE.

 TL;DR

• UAE Central Bank is encouraging all UAE Commercial banks and payment processors to participate in pilot integration for CBDC digital dirham
• All UAE licensed financial institutions will adopt digital dirham by 2026
• Several countries in MENA have active CBDC pilots while others have regulatory studies underway

In a recent EY (Ernst &Young) report entitled, “The digital assets innovation opportunity in MENA”, EY notes that the Central Bank of the UAE is operationalizing its domestic CBDC, the digital Dirham and encouraging all UAE commercial banks and payment processors to participate in a pilot integration with the Central Bank UAE node for issuing digital Dirham.

The Central Bank regulator has also decreed Digital Dirham adoption by all UAE licensed financial institutions (LFI) by 2026.

As per EY in the immediate term, banks, payments processors and FinTech participating in the Digital Dirham pilot will need to demonstrate readiness to integrate with the CBUAE Digital Dirham issuing node, and to develop use cases in the sandbox.

Beyond the UAE Central Bank CBDC project, EY explains that most banks in the UAE are still adopting a wait and see approach. Commercial banks are concerned about the impact on their deposit base, and increased volatility in times of crisis. CBDCs are typically also designed to be non-interest bearing, and most commercial banks are still thinking through their business cases for supporting digital currencies.

Yet EY notes that it has developed several digital asset use cases beyond CBDC for financial institutions across MENA.

Additionally, several countries in the MENA region have active CBDC pilots. They include Tunisia, Egypt, UAE, Qatar, Ghana and Saudi Arabia. While in Oman, Iraq, Jordan, Morocco and Algeria regulatory studies are ongoing.

According to EY, digital assets represent a US$1.3 trillion market globally, with even the relatively small, tokenized assets forays from global banks so far driving US$3b in value. The World Economic Forum, claimed that tokenization can add US$230b annually to the MENA GDP.

All of this is happening at the backdrop of CBDC implementation across the globe including the BRICS (Brazil Russia India China South Africa) which now also includes countries such as the UAE and KSA.

BRICS is working to create an independent payment system based on digital currencies and blockchain. The Russian Kremlin aide Yury Ushakov, noted, “We believe that creating an independent BRICS payment system is an important goal for the future, which would be based on state-of-the-art tools such as digital technologies and blockchain. The main thing is to make sure it is convenient for governments, common people and businesses, as well as cost-effective and free of politics,” he said in an interview with TASS.

The BRICS group of emerging economies added five developing nations. Specifically, the bloc introduced Saudi Arabia, the United Arab Emirates (UAE), Iran, Egypt, and Ethiopia in 2024.

While Hong Kong continues to support digital assets, with the latest budget revealing plans to launch a stablecoin sandbox to support issuers. Presenting the budget, financial secretary Paul Chan delved into stablecoins, plans to expand the city’s digital dollar, Web3 initiatives, tokenized bonds, and an expansion of China’s digital yuan testing.

Additionally, Hong Kong’s central bank digital currency (CBDC) efforts are gaining momentum. On the domestic front, the HKMA completed the first phase of the e-HKD pilot program last year where it studied the feasibility of the CBDC in tokenized deposits, offline payments, and programmable payments. The second phase of the pilot “will soon commence” to explore other use cases.

On the regional front, the HKMA has been a vital member of the mBridge cross-border CBDC pilot alongside central banks in China, the UAE, and Thailand. The four central banks, working with the Bank for International Settlements (BIS), will launch the project’s first phase in 2024.

But that is not all, the Hong Kong Monetary Authority (HKMA) has launched a wholesale central bank digital currency (wCBDC) pilot, one of the world’s first such platforms for tokenized deposits, assets and central bank money. The HKMA will set up a so-called sandbox to provide a closed loop for a select group of participants to test their innovations – from concepts to trading and settlement. The sandbox is expected to kick off formally by June 2024. Hashkey Group, one of the first licensed cryptocurrency exchanges in Hong Kong, was the first to announce its participation in the wCBDC project.

Given the EY report findings, as well as the strategy of BRICS nations, including the ongoing projects in Hong Kong, it would seem that CBDC implementations in the MENA region will also start to rise with implementations soon to be witnessed in the UAE.