The Central Bank of the United Arab Emirates (CBUAE) approved a new system for licensing and supervising stablecoins. The initiative is part of a wide-ranging program to support the banking and insurance sectors within financial infrastructure development.
The CBUAE board of directors, meeting at Qasr Al Watan in Abu Dhabi, approved the licensing and supervision system for stablecoins in the UAE. Under the new regulations, stablecoins must be backed by their issuers in dirhams (AED) for use in the country.
According to the new legislation, only stablecoins that aren’t pegged to other fiat currencies besides the dirham will be able to obtain a license in the UAE. Issuers of stablecoins backed by digital assets or powered by self-securing algorithms can’t obtain a license. Merchants and service providers in the UAE can only accept stablecoins backed by dirhams and no other virtual assets.
His Highness Sheikh Mansour bin Zayed Al Nahyan, Chairman of CBUAE, said that the initiative is part of the global financial infrastructure transformation (FIT) program, which aims to drive innovation and develop the UAE’s digital economy. The board also discussed the progress of the central bank digital currency (CBDC) development framework, the prospects of JAYWAN national debit cards, and the possibilities of using the Aani instant payment platform.
According to Samir Safar-Ali, Financial Regulatory Counsel and MENA FinTech & AI Lead at the international law firm Baker McKenzie, the adopted rules won’t apply to the free economic zones of the UAE, which have their own rules. He said issuers of stablecoins backed by currencies other than the dirham can still apply for licenses from the Virtual Assets Regulatory Authority (VARA) or Abu Dhabi Global Market (ADGM).
Paxos International recently launched the Lift Dollar (USDL). This yield-bearing stablecoin will be regulated by the ADGM and backed by U.S. securities and equivalent reserves. USDL won’t be available to American and European users as local regulators don’t license it. However, the stablecoin will be available to users in the Abu Dhabi Free Economic Zone and Argentina. Stablecoin interest income will be automatically distributed through smart contracts on the Ethereum blockchain.
The Dubai Financial Services Authority (DFSA) recently relaxed the legal framework regulating the use of digital assets within the Dubai International Financial Centre (DIFC), which was proposed in March this year.
