UAE Central Bank Approves First Regulated Dirham Stablecoin

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The Central Bank of the United Arab Emirates (CBUAE) has granted in-principle approval to AED Stablecoin. This marks a significant step towards issuing the region’s first fully regulated, dirham-pegged token. This positions AED Stablecoin to play a crucial role in the UAE’s burgeoning digital economy.

A Step Closer to AE Coin

The approval is part of the CBUAE’s newly established Payment Token Service Regulation framework. It also aligns with the government’s vision for the future, particularly the UAE’s Digital Government Strategy 2025.

However, it brings AED Stablecoin closer to realizing its vision of launching AE Coin, a dirham-pegged digital currency. If fully approved, AE Coin could transform how residents and merchants engage with digital assets. 

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It can become a local trading pair widely accepted for goods and services. It could also help users integrate crypto assets into everyday life in the UAE. The future of crypto payments in the region looks promising, even with CBUAE’s cautious yet progressive stance. Intriguingly, AED Stablecoin is poised to play a key role in that evolution.

Navigating a Strict Regulatory Framework

The UAE’s updated regulatory framework has introduced several challenges for AED Stablecoin and other potential issuers. The new crypto law stated that stablecoin issuers must back their tokens with real assets. This has to be either cash in escrow accounts within UAE banks or maintaining 50% in cash. While the rest is invested in secure options such as UAE government bonds or CBUAE Monetary Bills.

Additionally, the new framework bans high-risk tokens, such as algorithmic stablecoins and privacy coins. These new rules demonstrate the UAE’s commitment to building a safe and secure crypto environment.

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Speculatively, to avoid these new rules, Ripples Labs Inc. recently secured an in-principle approval from the Dubai Financial Services Authority (DFSA). The firm can extend its innovative blockchain-based payment services to the UAE with this license.

The Growing Race Among Stablecoin Issuers

As AED token works towards full approval, it faces competition from global stablecoin giants like Tether and USD Coin (USDC). 

In August, Tether announced plans to collaborate with UAE-based firms Phoenix Group and Green Acorn Investments to launch its own dirham-pegged stablecoin. AED’s move signals that the race to dominate the UAE’s rapidly growing stablecoin market is heating up despite Tether’s strong position globally. 

This innovative development comes as stablecoin adoption and market value are gaining momentum globally. 

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