February 1, 2024

UAE Shifts Away from US Dollar, Chooses Digital Dirham in Groundbreaking Agreement with China

China and the UAE, both members of the BRICS alliance, have completed a groundbreaking cross-border transaction, bypassing the traditional use of the US dollar by utilizing the newly introduced digital dirham.

In a significant development reshaping the global economic landscape, the United Arab Emirates (UAE), a BRICS alliance member, has taken a substantial step in its international trade dealings. Breaking away from the conventional reliance on the US dollar, the UAE has opted to settle payments to China using its recently launched digital dirham, a digital iteration of its national currency.

This strategic move not only signifies a departure from the established practice of conducting global transactions in the US dollar but also highlights the evolving dynamics within the BRICS coalition.

On Monday, Sheikh Mansour Bin Zayed Al Nahyan, Vice President, Deputy Prime Minister, Chairman of the Presidential Court, and Chairman of the Board of the Central Bank of the UAE, made history by initiating the first cross-border payment of Dh50 million using the UAE Central Bank’s digital currency, ‘digital dirham’.

This historic transaction was conducted directly to China through the ‘mBridge’ platform during the ‘Golden Jubilee’ celebration of the Central Bank’s establishment and the graduation of 1,056 Emiratis from the first batch of the ‘Ethraa Emiratisation’ program at the Abu Dhabi National Exhibition Centre.

Launched in 2021 by the central monetary authorities of China, Hong Kong, Thailand, and the UAE in collaboration with the Bank for International Settlement (BIS), Project mBridge is the sole international collaborative partnership involving China. The project successfully completed its first pilot in September 2022.

Commenting on mBridge's advancements, Representative Maxine Waters, a member of the House Financial Services Committee in the United States Congress, expressed concerns about the initiative being used to evade economic sanctions.

Sheikh Mansour emphasized the Central Bank's responsibility to promote economic growth, support development initiatives, ensure financial and monetary stability, and enhance the efficiency of the financial system.

The ultimate goal of these developments is to solidify the UAE’s position as a global financial center, reflecting the leadership’s strategic dedication to this objective.

Sheikh Mansour also underscored the leadership's commitment to empowering Emirati citizens and fostering expertise across various domains. This commitment aims to supply the financial sector with highly skilled domestic personnel and contribute to the nation’s cultural and developmental progress.

Congratulations were extended to the first cohort of the Ethraa program graduates, the Central Bank's staff, and the Emirates Institute of Finance. Sheikh Mansour wished them success in their endeavors to serve the nation and contribute to its ongoing advancement.

During the event, the subsidiaries of the Central Bank showcased the ‘Innovative Projects’ Pavilion, where Sheikh Mansour was briefed on the exhibits. Additionally, he observed the establishment of Al Etihad Payments, managing the local payment card system, and witnessed the execution of the initial effective financial transaction using a payment card with unique attributes.

Sheikh Mansour also received explanations about the services offered by the Aani immediate payment platform, introduced by Al Etihad Payments in October 2023, and the supervisory technology project ‘Suptech’.

The BRICS countries, the UAE, and China, boasting billion-dollar trade deals, risk affecting the US dollar by using digital dirhams as payment. If these two BRICS nations continue to transact in digital dirhams, the US dollar may face severe repercussions.

As a new BRICS member, the UAE seeks innovative ways to propel the digital dirham ahead of the US currency. Furthermore, China encourages developing countries to prioritize their indigenous currencies in trade settlements over the US dollar.

The digital dirham, part of the United Arab Emirates’ Central Bank Digital Currency Strategy, aims to enhance domestic and cross-border payments, promote financial inclusion, and facilitate a transition towards a cashless economy through wholesale and retail CBDC issuance.

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