UAE Central Bank Approve Plans for AED Stablecoin

The United Arab Emirates central bank has approved a company to issue the AED stablecoin, a coin pegged to the dirham.

This UAE move attempts to leverage blockchain technology’s ever-growing world and its integration with the financial sector. The aim is to drive financial innovation in the UAE by supporting decentralized finance (DeFi) and facilitating seamless payments for individuals and businesses.

The move also emphasizes the government’s interest in becoming one of the foremost financial leaders in the Gulf region and subsequently the world.

AED Stablecoin Gets Preliminary Approval

The Central Bank of the United Arab Emirates (CBUAE) has granted preliminary approval to AED Stablecoin under its Payment Token Service Regulation framework, the company said in a news release.

The approval comes after concerns about potential restrictions on crypto payments, which arose after the CBUAE released its licensing framework to issue stablecoin approvals.

These rules prohibit algorithmic stablecoins and privacy tokens. Issuers of stablecoins must back them fully with cash held in escrow at UAE banks, denominated in dirhams. Alternatively, they can have 50% of their reserves as cash and invest the remaining portion in UAE government bonds and CBUAE Monetary Bills, with an average duration of up to six months.

UAE’s idea behind a stablecoin is to provide a digital currency that allows for secure, transparent, and swift transactions compared to traditional systems.

The Central Bank is also trying to increase public trust in cryptocurrencies, mitigating fears related to volatility and security, which often represent significant obstacles to their large-scale adoption.

The Race for Full Approval Between AED and Tether

AED Stablecoin may compete with Tether, the world’s largest stablecoin issuer by market capitalization, to launch the first dirham-pegged stablecoin. Last month, the company announced plans to launch an AED stablecoin. Tether’s USDT poses significant competition as both companies vie for a share of the UAE’s digital currency space.

If fully approved, stablecoins could be used as a local trading pair for cryptocurrencies on exchanges and decentralized platforms. It could also enable merchants to accept it for goods and services, adding further competition to the market.

A stablecoin is a cryptocurrency whose value is pegged to a stable asset, usually a fiat currency like the United States dollar or, in this case, the United Arab Emirates dirham (AED).

Unlike other cryptocurrencies known for their volatility, stablecoins are designed to maintain a constant value over time. This makes them useful for citizens and businesses in facilitating stable and secure digital currency transactions.