The recent meeting of the board of directors of the Central Bank of the United Arab Emirates (CBUAE) resulted in the approval of a novel system designed to supervise and grant licenses for stablecoins. The gathering, held in Abu Dhabi, focused on various projects falling under the umbrella of the government's financial infrastructure transformation (FIT) program. This initiative sets out to elevate digital transactions, propel the nation's digital economy forward, and nurture a culture of innovation.

The session, overseen by UAE vice president and CBUAE chairman Sheikh Mansour bin Zayed Al Nahyan, saw the participation of deputy chairmen Abdulrahman Saleh Al Saleh and Jassem Mohammad Al Zaabi, CBUAE Governor Khaled Mohamed Balama, and other esteemed members of the central bank's board.

Decisive Steps Towards Stablecoin Licensing

Among the crucial decisions taken during the meeting was the endorsement of a regulatory framework devised for the supervision and licensing of stablecoins. Kokila Alagh, founder of KARM Legal Consultants, shed light on the significance of these regulations in an interview with local media Unlock Blockchain. Alagh clarified that the regulations delineate the procedures for issuing, licensing, and overseeing payment tokens backed by the Emirati Dirham (AED).

Notably, the regulations stipulate that payment tokens ought to be supported exclusively by AED and must not be pegged to other currencies, digital assets, or algorithms. It was further highlighted that merchants and service providers are mandated to exclusively accept AED-backed tokens and abstain from involving any other virtual assets.

Embracing Financial Transformation

While the intricate details of the board meeting remain undisclosed, it was revealed that the agenda revolved around pivotal projects associated with the FIT program. Earlier in February, the CBUAE announced its forthcoming issuance of a central bank digital currency (CBDC) within the framework of the FIT program.

The introduction of a CBDC aims to tackle inefficiencies in cross-border payments and foster innovation in domestic payment systems. The CBUAE envisions that this move will enhance the UAE's competitiveness as a prominent financial and digital payments center.

Regulatory Updates on Cryptocurrency Tokens

In addition to the strides in stablecoin licensing, a financial regulator in the UAE recently revised its protocols for recognizing stablecoins. On June 3, the Dubai Financial Services Authority (DFSA) introduced enhanced criteria for acknowledging stablecoins within its jurisdiction.

Presently, the regulator acknowledges a select few crypto tokens, including Bitcoin (BTC), Ether (ETH), Litecoin (LTC), XRP, and Toncoin (TON). Consequently, funds within the Dubai International Financial Centre (DIFC) have limitations on investing in tokens beyond the recognized assets.

However, with the updated token regime, the regulator has permitted investments in unrecognized crypto tokens, provided that such investments do not surpass 10% of the gross asset value of the funds.