UAE to Ban Crypto Payments, Only Allow CBDC Use? Crypto Lawyer: Detrimental to the Country's Digital Economy Development

Crypto lawyer Irina Heaver tweeted that the "Stablecoin Regulation and Licensing Framework" approved by the Central Bank of the UAE (CBUAE) earlier this month effectively prohibits stablecoin payments other than those based on the local fiat currency, the Emirati Dirham (AED). This is seen as a setback for the country, which has been considered a proponent of digital economy advancement.

Background: UAE’s Financial Infrastructure Transformation (FIT) Plan

Earlier this month, the board of the Central Bank of the United Arab Emirates (CBUAE) discussed the country's "Financial Infrastructure Transformation (FIT) Plan," aimed at promoting financial innovation and digital transactions to advance the country's digital economy.

During the meeting, regulations on stablecoins were approved, outlining specific details on the issuance, licensing, and regulation of payment tokens.

Kokila Alagh, founder of KARM Law Firm, mentioned in an interview with local media Unlock Blockchain:

The stablecoin must be backed by the Emirati Dirham (AED) and cannot be pegged to other currencies or digital assets; furthermore, retailers and service providers can only accept tokens based on the Emirati Dirham for payments, and consumers cannot use other virtual assets for transactions.

UAE to Ban Cryptocurrency Payments?

Cryptocurrency lawyer Irina Heaver expressed concerns on social media platform X stating that the UAE's move could be seen as effectively banning other cryptocurrency payments, potentially putting themselves at a disadvantage in their digital financial transformation journey.

Heaver pointed out that the new regulation mandates payment tokens to be backed by the local currency Emirati Dirham (AED) and not linked to other currencies.

In other words, only stablecoins based on the Emirati Dirham, such as the central bank digital currency (CBDC) "Digital Dirham," would be allowed for issuance and daily transactions:

Currently, only the Digital Dirham and registered foreign payment tokens can be used, but neither of these currently exist.

She added, "CBUAE can impose fines or sanctions for non-compliance with the above."

Irina Heaver: Digital Economy Progress Hindered

Heaver emphasized that the UAE's relatively open economic policies have attracted significant foreign capital, including free capital flow and business partnerships, allowing parties to negotiate their terms of trade, including payment methods:

However, the new regulations contradict the UAE's previous pro-business stance and may deter foreign investors.

She also believed that the issuance of stablecoins like Tether's USDT, which serves as a "core" in blockchain and crypto transactions, might hinder the UAE's digital development plans by prohibiting transactions with other stablecoins, including USDT:

The new regulations could make the cryptocurrency industry environment in the UAE unfavorable, conflicting with the country's image and digital financial goals.

UAE Lacks Cryptocurrency Industry Associations

Furthermore, she also mentioned the lack of representation of the cryptocurrency industry in the UAE, stating that the country lacks industry associations like the Crypto Valley Association in Switzerland, which could help combat inappropriate local regulations:

The absence of a unified voice in the UAE's cryptocurrency industry is a significant disadvantage, as no one can challenge what she believes are "ill-considered" policies by the authorities.