The UAE’s financial system has traditionally been built around sovereign currency issued by the Central Bank, licensed banks and regulated payment service providers. While electronic payments, mobile wallets and other digital services have become increasingly common, these technologies generally operated as digital means of accessing conventional money rather than as new forms of money in themselves.

That distinction is now changing. The UAE has spent recent years developing a legal and regulatory framework for digital money, stablecoins and tokenised payments. The introduction of the Payment Token Services Regulation in 2024, followed by the Federal Decree-Law No. 6 of 2025 Regarding the Central Bank, Regulation of Financial Institutions and Activities, and Insurance Business, has placed digital financial activity more firmly within the Central Bank’s regulatory perimeter. The result is an emerging framework in which sovereign digital currency, privately issued payment tokens and other virtual assets are treated differently according to their function and risks.

From Conventional Payments to Regulated Digital Money

Under the earlier system, customers could increasingly make payments electronically, but the underlying value generally remained conventional UAE dirhams held through licensed financial institutions. Digital payment infrastructure therefore changed how money moved without fundamentally changing what constituted money.

The regulatory approach began to evolve with the UAE’s Financial Infrastructure Transformation (FIT) Programme and the development of the Digital Dirham. The Central Bank began testing the national central bank digital currency across retail and wholesale use cases, including transfers, payments, cross-border settlement and tokenisation. By 2024, the CBUAE had completed a first phase of the Digital Dirham project and tested functionalities including programmability and tokenisation.

The legal basis was subsequently strengthened. Under Article 53 of the 2025 Central Bank Law, issuance of currency remains the exclusive right of the State exercised through the Central Bank. Article 58 separately provides for currency in digital form and establishes a framework for its issuance, circulation and redemption.

The Digital Dirham is therefore fundamentally different from a privately issued cryptocurrency. It is sovereign digital money issued by the CBUAE and forms part of the UAE’s national currency framework.

The transition is no longer confined to testing. In November 2025, the Ministry of Finance and Dubai Finance completed the first UAE government financial transaction using the Digital Dirham. The transaction was carried out through the mBridge platform and was completed in less than two minutes, demonstrating the potential for digital currency to be integrated into government payment infrastructure.

The 2024 Payment Token Services Regulation

Alongside the Digital Dirham, the UAE has created a separate framework for privately issued digital payment instruments.

The Payment Token Services Regulation, Circular No. 2/2024, came into force on 31 August 2024. It established rules for the licensing and registration of payment-token activities and divided those activities into three principal categories: issuance, conversion, and custody and transfer.

The regulation is particularly relevant to stablecoins. It permits regulated payment tokens denominated in either UAE dirhams or foreign currencies, while imposing restrictions on instruments that do not meet the regulatory requirements. Algorithmic stablecoins and privacy tokens, for example, cannot be issued or promoted as payment tokens under the framework.

Businesses cannot simply launch a stablecoin and offer it for payments in the UAE without regulatory approval. A person providing payment-token services within the UAE must generally be licensed or registered by the CBUAE. The regulation also allows the Central Bank to designate certain virtual assets as means of payment, reinforcing its role in determining which digital assets can operate within the regulated payments ecosystem.

Reserve Requirements and Consumer Protection

The legal framework is also designed to address one of the central risks associated with privately issued digital money: whether a token can actually maintain its promised value.

Payment-token issuers must maintain appropriate reserve assets and comply with safeguards governing those assets. The framework requires a payment token to be redeemable at par value in the relevant fiat currency, giving tokenholders a defined redemption right rather than leaving the value of the instrument dependent solely on market demand.

The regulation also imposes disclosure and consumer-protection requirements. Before issuing a payment token, an issuer must prepare a white paper, submit it to the Central Bank for acceptance and publish it in accordance with the regulatory requirements. Customer agreements must set out relevant fees, charges and other contractual terms in clear language.

Payment-token providers must additionally maintain risk-management, internal-control and compliance functions proportionate to their activities. Personal data must be protected and stored in accordance with applicable requirements, with the regulation imposing specific controls around data security and retention.

These safeguards distinguish the UAE’s regulated payment-token framework from unregulated cryptocurrency activity. The focus is not simply on enabling digital payments, but on ensuring that digital payment instruments have identifiable issuers, defined obligations, reserve arrangements and regulatory oversight.

The 2025 Central Bank Law Expands the Framework

The adoption of Federal Decree-Law No. 6 of 2025 has given the framework a broader statutory foundation.

Article 156 grants the CBUAE exclusive authority to regulate digital banking, digital money, payment tokenisation, stored-value facilities and retail and wholesale payment systems, including cross-border payment systems. The provision also authorises the Central Bank to take measures to mitigate risks to the UAE’s financial and economic systems.

The significance of Article 156 is that payment tokenisation is no longer treated as an isolated fintech development. It is expressly incorporated into the country’s wider financial regulatory architecture.

Article 62 further addresses emerging technologies used to conduct licensed financial activities. This includes activities involving payment tokens and other technology-enabled financial services. The effect is to make the regulatory framework less dependent on the particular technology being used. A service does not escape financial regulation simply because it is delivered through blockchain or another emerging technology.

From Regulation to Real-World Adoption

The UAE’s regulatory framework is increasingly being accompanied by commercial use cases.

AE Coin, the UAE’s first AED-backed payment token, received CBUAE approval and has subsequently been integrated into payment infrastructure. In February 2026, it was announced as a payment method for federal government authorities, demonstrating a move towards the use of regulated digital money beyond pilot environments.

Other initiatives have followed. RAKBank received in-principle approval in January 2026 to issue a dirham-backed stablecoin, subject to completion of regulatory and operational requirements. The proposed structure includes one-to-one dirham backing and segregated accounts supporting redemption.

In February 2026, the CBUAE approved the launch of DDSC, a UAE dirham-backed stablecoin developed by International Holding Company, First Abu Dhabi Bank and Sirius International Holding. DDSC was subsequently used in a AED110 million transaction in May 2026, demonstrating that regulated payment tokens can be used for institutional-scale settlement rather than only retail payments.

By July 2026, DDSC had received a CBUAE no-objection certificate to operate on selected VARA-regulated exchange platforms. This opened the possibility of broader use by businesses and individuals for transactions including shopping and peer-to-peer transfers.

The market is also becoming more interconnected. In May 2026, AE Coin and USDU announced plans for an AED-USD digital conversion framework, illustrating how different regulated payment-token ecosystems could interact while remaining within UAE regulatory oversight.

Regulatory Coordination and Compliance

The UAE’s digital-asset landscape is not governed by a single regulator. The CBUAE oversees regulated payment tokens and payment activities, while VARA regulates virtual-asset activities in Dubai and the ADGM Financial Services Regulatory Authority operates its own framework for fiat-referenced tokens within Abu Dhabi Global Market.

This distinction is legally significant. A business dealing with digital assets must identify whether its activities constitute regulated payment services, virtual-asset activities, or another financial activity, and determine which authority has jurisdiction.

The Payment Token Services Regulation itself recognises this distinction by excluding the UAE’s financial free zones from its definition of the UAE for particular regulatory purposes.

For businesses entering this sector, compliance therefore extends beyond obtaining a licence. Providers must consider reserve arrangements, redemption obligations, customer agreements, data protection, risk management, reporting and AML/CFT controls. The Central Bank’s increasing supervisory activity also indicates that compliance is moving beyond the establishment of rules towards active regulatory monitoring.

Looking Ahead

The UAE is moving from a financial system in which digital technology primarily changed the way conventional money was transferred towards one in which the form, movement and functionality of money itself can be digital.

The Digital Dirham provides a sovereign form of digital money, while regulated payment tokens create a framework for privately issued digital payment instruments. Tokenised deposits, blockchain-based settlement and cross-border digital payments add another layer to this developing ecosystem.

Recent commercial developments suggest that the transition is already underway. The legal challenge will be to ensure that innovation does not outpace safeguards relating to monetary stability, financial crime, consumer protection and systemic risk.

For banks, fintech companies, payment providers and businesses considering digital-asset payment solutions, the regulatory question is therefore becoming increasingly practical: not whether a technology is blockchain-based, but whether the proposed activity constitutes a regulated financial service and which regulatory framework governs it.

The UAE’s approach indicates that digital finance is being brought into the mainstream financial system through regulation rather than allowed to develop entirely outside it. As the Digital Dirham, payment tokens and tokenised financial services mature, the resulting framework could significantly reshape how payments and financial transactions are conducted within the UAE and across borders.

References

1. Federal Decree-Law No 6 of 2025 Regarding the Central Bank, Regulation of Financial Institutions and Activities, and Insurance Business.
2. Central Bank of the UAE, Payment Token Services Regulation (Circular No 2/2024) https://rulebook.centralbank.ae/en/rulebook/payment-token-services-regulation accessed 4 September 2026.
3. Central Bank of the UAE, ‘Article 61: Licensed Financial Activities’ https://rulebook.centralbank.ae/en/rulebook/article-61-licensed-financial-activities accessed 4 September 2026.
4. Central Bank of the UAE, ‘Article 62: Carrying on Licensed Financial Activities through Emerging Technologies’ https://rulebook.centralbank.ae/en/rulebook/article-62-carrying-licensed-financial-activities-through-emerging-technologies accessed 4 September 2026.
5. Central Bank of the UAE, ‘Article 156: Retail and Wholesale Payment Operations and Related Digital Services’ https://rulebook.centralbank.ae/en/rulebook/article-156-retail-and-wholesale-payment-operations-and-related-digital-services accessed 4 September 2026.
6. Central Bank of the UAE, Digital Dirham: A Primer on the UAE’s Central Bank Digital Currency (Policy Paper No 01/2025) https://www.centralbank.ae/en/news-and-publications/publications/cbuae-policy-papers/digital-dirham-a-primer-on-the-uae-s-central-bank-digital-currency/ accessed 4 September 2026.
7. Central Bank of the UAE, Annual Report 2024 https://www.centralbank.ae/media/tagjsl1q/cbuae-annual-report_2024_a4_en_june-25-2025-revised.pdf accessed 4 September 2026.
8. ‘What You Need to Know About UAE Central Bank’s New Regulation on Stablecoins’ The National (19 July 2024) https://www.thenationalnews.com/future/technology/2024/07/19/what-you-need-to-know-about-the-uae-central-banks-new-regulation-on-stablecoins/ accessed 4 September 2026.
9. ‘UAE Stablecoin Rules Are Now Quickly Changing How You Pay, Bank Everyday’ Gulf News (21 January 2026) https://gulfnews.com/business/banking/uae-stablecoin-rules-are-now-quickly-changing-how-you-pay-bank-everyday-1.500415007 accessed 4 September 2026.
10. ‘AE Coin: A Payment Method for UAE’s Federal Government Authorities’ Gulf News (2 February 2026) https://gulfnews.com/business/corporate-news/ae-coin-a-payment-method-for-uaes-federal-government-authorities-1.500429078 accessed 4 September 2026.
11. ‘UAE Dirham-backed Stablecoin DDSC Now More Accessible for Retail Transactions’ The National (5 July 2026) https://www.thenationalnews.com/business/money/2026/07/05/uae-dirham-backed-stablecoin-ddsc-now-more-accessible-for-retail-transactions/ accessed 4 September 2026.
12. ‘IHC Carries Out Dh110m UAE Dirham-backed Stablecoin Transaction’ The National (22 May 2026) https://www.thenationalnews.com/future/technology/2026/05/22/ihc-carries-out-dh110m-uae-dirham-backed-stablecoin-transaction/ accessed 4 September 2026.
13. ‘HSBC Launches UAE Tokenised Deposits for Instant Corporate Money Transfers’ Gulf News (22 June 2026) https://gulfnews.com/business/banking/hsbc-launches-uae-tokenised-deposits-for-instant-corporate-money-transfers-1.500582616 accessed 4 September 2026.
14. ‘First Abu Dhabi Bank Tests 24/7 Cross-border Payments with Citi’ Gulf News (2 September 2026) https://gulfnews.com/amp/story/business%2Fbanking%2Ffirst-abu-dhabi-bank-tests-247-cross-border-payments-with-citi-1.500660520 accessed 4 September 2026.
15. Emirates News Agency (WAM), ‘CBUAE Approves Launch of UAE Dirham-backed Stablecoin DDSC on ADI Chain’ (11 February 2026) https://www.wam.ae/en/article/172j8aa-cbuAE-approves-launch-uae-dirham-backed-stablecoin accessed 4 September 2026.
16. Emirates News Agency (WAM), ‘IHC Executes Landmark AED110 Million DDSC Transaction on ADI Chain’ (22 May 2026) https://www.wam.ae/en/article/178ff6e-ihc-executes-landmark-aed110-million-ddsc accessed 4 September 2026.

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