The issuance and use of stablecoins is increasing worldwide, and the market is expected to reach 3 trillion dollars within five years. The key to this continued growth lies in crypto regulations that will help advance the use of stablecoins and usher in a new era of financial innovation. Governments recognize this opportunity and are working hard to launch frameworks that provide greater clarity.
New regulations from the Central Bank of the United Arab Emirates (CBUAE) designed to integrate stable coins backed by the dirham and as well as non-AED-backed stablecoins in its financial systems are emblematic of this shift. They not only help solidify the UAE’s position as a global leader in digital assets, but also reflect a broader trend of progressive crypto regulation in the country. By adopting stablecoins, the UAE is laying the foundation for safer and more efficient financial systems.
UAE Stablecoin Regulations
The UAE has made no secret of its ambition to become a global hub for well-regulated blockchain activities. It is already one of the most advanced jurisdictions when it comes to offering clear regulations for digital asset services, with Dubai’s Virtual Assets Regulatory Authority (VARA), the Abu Dhabi Global Market and the DIFC all contributing to a robust regulatory ecosystem.
CBUAE’s new framework for stablecoins adds a critical layer of clarity, allowing market participants to issue AED-backed stablecoins that can be used for payments and register non-AED stablecoins that can be used for virtual asset payments. This promotes the development of stablecoin use cases in a safe and structured environment. The framework is expected to focus on enabling payments via AED-backed stablecoins and prohibit businesses and providers from accepting tokens that do not offer the same guarantees. Combined with the approach to registering foreign currency-backed stablecoins, this measured approach would also help manage risks related to liquidity, market volatility, compliance and operational challenges.
Regulators around the world all dictate that a stablecoin must be licensed for use in a jurisdiction, but the UAE’s approach is different from many other frameworks. For example, the proposition Stablecoin Payment Clarity Act In the United States, there is more emphasis on requirements and enforcement relative to the currency a coin is pegged to. And while Mica In the European Union, stablecoins backed by non-EU currencies are capped at one million transactions per day, but they are not completely banned. The UAE’s approach aims to allow the use of dirham- and non-dirham-backed stablecoins without any caps, but limits the use of dirham-backed stablecoins to payments for virtual assets and their derivatives. The CBUAE hopes that this will promote innovation and collaboration between different providers.
Blockchain and digital finance in the United Arab Emirates
With citizens at the forefront of technology and a government keen to foster innovation, the UAE provides fertile ground for the integration of digital banking and blockchain into its financial sector. At the heart of this transformation is Dubai International Financial Center (DIFC)home to the region’s largest innovation community. From growth-stage technology companies to digital labs and venture capital firms, the DIFC is a thriving hub for blockchain and digital asset development.
This powerful blend of DIFC, the UAE’s status as a global home for expats and the clear benefits of blockchain for payments, has spurred banks and financial institutions in the region to rapidly deploy the technology to modernize remittances and cross-border payments. This is partly why the MENA region now ranks first sixth largest cryptocurrency economy globally, processing nearly $400 billion in on-chain value between July 2022 and June 2023.
Ripple is also a leading player in the region. THE Abu Dhabi National Bank was the first bank in the Middle East to use Ripple Payments to provide immediate, secure and cost-effective remittance solutions – a key advantage in a country that sent almost 80 million dollars of outgoing remittances in 2022. And the digital asset XRP has been approved late last year, under the auspices of the Dubai Financial Services Authority (DFSA), for use within the DIFC.
Innovation supported by the dirham
The goal of the CBUAE is to proactively promote a well-regulated stablecoin ecosystem, particularly dirham-backed stablecoins, to offset more volatile cryptocurrencies and better protect investors. It also aims to make the country an attractive option for providers and businesses, opening the door to innovations that could revolutionize cross-border payments, improve financial inclusion and streamline digital transactions. As proof, Attached has already announced plans to launch a stablecoin in the UAE, leveraging the dirham as an alternative to the US dollar.
More broadly, this development offers clear prospects benefits for UAE businesses. Stable payments are fast and cost-effective, while reducing the risks associated with currency fluctuations, enabling smoother financial planning and operations. Additionally, their integration into blockchain platforms can simplify supply chain management through smart contracts, automating payments and reducing human errors.
Shaping the future of digital finance
The UAE’s prospective stablecoin regulations help solidify the country’s role as a global leader in crypto frameworks and digital financial innovation. By establishing clear and progressive rules, regulators foster an environment conducive to innovation, while ensuring the protection of consumers and businesses.
Stablecoins are now set to play a crucial role in the country’s economic diversification, alongside its broader plans to launch a central bank digital currency (CBDC) through its financial infrastructure transformation program. Together, these digital assets can help digitize the UAE economy, increase financial inclusion, improve cross-border payments and provide a secure alternative to traditional financial systems.
Learn more about the potential impact of stablecoins in Ripple’s latest whitepaper.
