With the enactment of CB Law 2025, the CBUAE has officially moved its Central Bank Digital Currency (“CBDC”) strategy from the pilot phase to legislative reality by establishing the "Digital Dirham" as recognized legal tender, fundamentally altering the nation’s monetary framework.
The new legislation, which replaces the 2018 banking law, expands the definition of "Currency" to include digital forms issued by the Central Bank and codifies the Digital Dirham as a direct claim on the Central Bank. This move distinguishes the UAE from other major jurisdictions where CBDC initiatives remain largely in the consultative or experimental stage.
This development addresses the critical issue of "finality." Unlike commercial bank deposits, which carry counterparty risk, the Digital Dirham can be considered the same as risk-free sovereign debt. A debt discharged using the Digital Dirham is legally irrevocable and carries the mandatory acceptance power of the State, placing it on equal footing with physical banknotes.
Addressing concerns regarding the potential "disintermediation" of the banking sector, the CBUAE’s July 2025 Policy Primer confirms that the Digital Dirham will operate under an "indirect" or "two-tier" model. Under this framework, the Central Bank will manage the central ledger and issuance, while licensed financial institutions (including commercial banks and payment providers) will handle distribution and customer relationships. Commercial banks will continue to be responsible for wallet management, know your customer, and anti-money laundering compliance. This structure is designed to preserve the commercial banking sector’s role in credit creation while leveraging the Central Bank’s infrastructure for settlement efficiency.
With respect to implementation, the CBUAE has prioritized cross-border utility through Project mBridge, a collaborative initiative with the BIS Innovation Hub and the central banks of Hong Kong, China, and Thailand. Unlike domestic retail pilots, mBridge utilizes a shared ledger that allows participating central banks to issue CBDCs directly to one another. The platform’s viability was validated in late 2025 with the execution of the first government-to-government transaction, which successfully reduced settlement times from days to seconds by bypassing the traditional correspondent banking network.
Looking ahead, the new framework introduces "programmable" features that could disrupt traditional settlement mechanisms. The Digital Dirham’s architecture supports smart contracts, enabling "Atomic Settlement" or delivery-versus-payment.
In practice, this allows for conditional transactions where funds are released only upon the verification of external data. For the UAE’s property market, this capability allows for the automation of high-value transactions: funds can be programmed to transfer to a seller simultaneously with the digital registration of a title deed. This mechanism effectively eliminates "principal risk" and reduces reliance on third-party escrow services.
While the primary legislation is now in force, specific regulations governing the issuance and circulation mechanics are expected to be released by the CBUAE Board of Directors in the coming months.