The Central Bank of the UAE’s Digital Dirham initiative has reached several milestones through 2025 and early 2026, with the wholesale CBDC component advancing significantly through Project mBridge participation and the retail CBDC component progressing through consultation and design stages. For the full regulatory context, see the CBUAE payment token regulation analysis.
project mbridge wholesale cbdc
Project mBridge — the multi-country wholesale CBDC platform involving the CBUAE, the BIS Innovation Hub, the People’s Bank of China, the Hong Kong Monetary Authority, the Bank of Thailand, and the Saudi Central Bank — has moved from proof-of-concept to minimum viable product stage. The platform has successfully processed test transactions for cross-border payments using central bank digital currencies, demonstrating significant potential for reducing settlement times and costs in international trade finance.
The CBUAE has conducted cross-border CBDC settlement tests using the mBridge platform for bilateral trade settlement with participating central banks. These tests have validated the technical feasibility of CBDC-based cross-border settlement and informed the design specifications for the production system. The mBridge platform uses a custom-built blockchain infrastructure designed to meet the performance, privacy, and regulatory requirements of central bank operations.
The wholesale CBDC component has particular relevance for the tokenized securities market. If wholesale CBDC settlement becomes operational, tokenized securities could settle through CBDC payment legs rather than traditional correspondent banking arrangements, significantly reducing settlement times from T+2 or longer to near-instantaneous settlement. This would transform the economics of tokenized securities trading and increase the attractiveness of UAE-based tokenized securities platforms.
The CBUAE’s participation in mBridge also positions the UAE at the frontier of international CBDC development. The multi-country nature of the platform demonstrates the CBUAE’s commitment to cross-border interoperability — a design principle that aligns with the UAE’s role as a global trade and financial hub.
retail cbdc consultation
On the retail CBDC front, the CBUAE has published consultation documents soliciting industry and public input on the design of a general-purpose Digital Dirham. Key design questions under consultation include the distribution model — whether the Digital Dirham should be issued directly by the CBUAE to consumers (direct model) or distributed through commercial banks and payment service providers (two-tier model). International precedent favors the two-tier model, which leverages existing banking infrastructure while preserving the central bank’s role as the issuer.
Privacy protections for Digital Dirham users are under active consideration. The design must balance user privacy expectations with the CBUAE’s AML/CFT obligations and the need for transaction monitoring. Tiered privacy models — where small transactions enjoy greater privacy protections while larger transactions are subject to full identification requirements — are being evaluated.
Offline payment capabilities would enable Digital Dirham transactions in areas without internet connectivity, addressing financial inclusion objectives. Smart contract functionality could enable programmable payments including conditional transfers, automated compliance, and escrow arrangements. Interoperability with existing payment systems — including the UAE’s Instant Payment Platform — and with virtual asset platforms is a critical design consideration.
implications for the tokenization ecosystem
The Digital Dirham has significant implications for the broader tokenization ecosystem. A functional CBDC could serve as the on-chain settlement currency for tokenized asset transactions, potentially reducing reliance on privately issued stablecoins for settlement purposes and providing a regulatory-grade digital payment instrument.
For VARA-licensed exchanges, CBDC integration could provide a fiat settlement mechanism that operates at blockchain speed. For ADGM FSRA-licensed digital securities platforms, CBDC settlement could enable delivery-versus-payment (DvP) for tokenized securities transactions. For DFSA-regulated activities, CBDC could provide a payment rail for recognized token transactions.
The interaction between the Digital Dirham and privately issued stablecoins raises competitive and regulatory questions. The CBUAE’s payment token regulatory framework already regulates private stablecoins — a sovereign CBDC could either complement these instruments (by providing a different use case) or compete with them (by offering a central bank-backed alternative).
timeline and milestones
The Digital Dirham development timeline extends through 2026 and beyond. Key milestones include the completion of wholesale CBDC testing through mBridge, finalization of the retail CBDC design based on consultation outcomes, pilot programs for retail Digital Dirham deployment, integration planning with the existing UAE payment infrastructure, and regulatory framework development for CBDC-related services.
The regulatory framework tracker dashboard monitors the Digital Dirham implementation timeline. The stablecoin regulatory framework analysis examines the interaction between CBDCs and private stablecoins.
technology architecture considerations
The Digital Dirham’s technology architecture involves critical design decisions that will affect its functionality, scalability, and integration with the existing financial infrastructure. The mBridge wholesale platform uses a custom-built blockchain based on Ethereum technology but adapted for central bank requirements — this bespoke approach provides the performance, privacy, and governance features that public blockchains cannot offer for central bank operations.
For the retail CBDC, technology architecture decisions include the choice between account-based and token-based models. Account-based systems provide greater regulatory control and simpler integration with existing banking infrastructure. Token-based systems offer greater privacy and more natural interoperability with existing virtual asset platforms. Hybrid approaches that combine elements of both models are being evaluated internationally and may inform the CBUAE’s design decisions.
The smart contract capabilities of the Digital Dirham could enable programmable money features including conditional payments that execute automatically when specified conditions are met, escrow arrangements where funds are held until contractual obligations are satisfied, automated compliance checks that enforce regulatory requirements at the transaction level, and subscription and recurring payment automation.
These programmable features have particular relevance for tokenized asset markets. A tokenized bond could automatically distribute coupon payments through Digital Dirham smart contracts. A tokenized fund could process subscriptions and redemptions through programmable CBDC payments. A tokenized real estate investment could distribute rental income through automated smart contract distributions.
aml/cft integration
The Digital Dirham must integrate with the UAE’s AML/CFT framework while maintaining appropriate privacy for users. The design must enable transaction monitoring at scales required for systemic financial infrastructure, suspicious transaction detection and reporting to the UAE FIU, Travel Rule compliance for CBDC transfers to virtual asset platforms, sanctions screening against lists maintained by the EOCN, and KYC/CDD processes through the distribution layer (banks and payment service providers in the two-tier model).
The tiered privacy approach under consideration would provide transactional privacy for small-value everyday payments while maintaining full identification and monitoring capabilities for larger transactions. This approach aligns with the FATF’s guidance on balancing privacy with AML/CFT effectiveness.
banking system impact assessment
The introduction of a retail CBDC has potential implications for the UAE banking system that the CBUAE must carefully manage. Disintermediation risk — where deposits migrate from commercial banks to CBDC holdings — could affect banks’ funding models and lending capacity. The CBUAE is evaluating design features that mitigate disintermediation risk, including holding limits that cap the amount of CBDC any individual or entity can hold, remuneration design that makes large CBDC holdings less attractive than bank deposits, and distribution incentives that encourage banks to facilitate CBDC distribution rather than resist it.
The banking system impact is particularly relevant for VASPs because banks provide essential fiat currency services to virtual asset operations. Any disruption to bank funding models or operational capacity could affect VASPs’ access to banking services — a channel that the CBUAE already supervises as part of its oversight of bank-VASP relationships.
international context
The UAE’s CBDC development is proceeding alongside initiatives in many major economies including China’s digital yuan (e-CNY), the European Central Bank’s digital euro, the Bank of England’s digital pound, and numerous emerging market CBDC programs. The international regulatory developments brief tracks parallel CBDC developments globally.
The UAE’s participation in mBridge positions it among the most advanced CBDC programs globally, particularly for cross-border applications. This leadership position reinforces the UAE’s broader strategy of establishing itself as a hub for digital financial innovation.
For official Digital Dirham publications, visit the CBUAE. Project mBridge updates are published by the Bank for International Settlements.