The United Arab Emirates (UAE) has placed its Digital Dirham on equal legal footing with physical cash in a landmark financial development. Now, the dirham is recognized in notes, coins, and digital forms under the Federal Decree Law No. (6) of 2025. Hence, the law has provided the Central Bank of the UAE (CBUAE) with the full authority to regulate and issue the digital currency of the nation.
The move has positioned the UAE among the leading currencies in adopting the Central Bank Digital Currency (CBDC) technology. Hence, it has reinforced its commitment to a cashless and digital economy.
Digital Dirham Now Legal Tender for All Transactions
According to the new law, the Digital Dirham is now fully considered legal tender for payment of any amount. Hence, it has ensured that no merchant, financial institution, or government body can refuse it once implementation begins.
Ali Awad, Partner at Al Tamimi & Company, said, “Once the CBUAE’s detailed regulations are in place, this currency will be fully operational across all sectors”. He noted that the forthcoming regulation is going to define how digital currency is issued, circulated, redeemed, and transferred.
The first milestone was already achieved when the Ministry of Finance and Dubai’s Department of Finance completed the UAE’s first government financial transaction using the digital currency, in coordination with the CBUAE. Hence, it has marked a successful start to the pilot phase.
Potential for Salaries, Retail Payments, and Remittances
Legal experts have confirmed that the new status of this currency has paved the way for salary payments, retail purchases, and remittances to be conducted digitally. Awad said, “Now that it is legally recognised, there is no obstacle to paying salaries or making purchases in these Dirhams. However, this depends on the upcoming CBUAE regulations on issuance, distribution, and wallet interoperability.”
Employers, banks, and payment platforms will need to integrate with this currency’s infrastructure. However, the international usage will depend on cross-border agreements for CBDC corridors to enable instant global remittances.
How the Digital Dirham Differs from Traditional Cash
The Central Bank of the UAE describes the Digital Dirham as a digital version of the UAE’s national currency, as it is backed by the same trust and security as physical money. However, it will offer greater conveniences. Below are the key differences between physical and digital UAE currency:
- Instant settlements and lower transaction costs
- Programmable payments and real-time transfers
- Seamless cross-border transactions
- Broader financial inclusion for unbanked and under-banked individuals
Unlike physical currency, it enables automated and programmable transactions to simplify financial operations and improve the speed of commerce.
Regulatory and Technological Framework
The CBUAE is going to use an intermediate CBDC model, which involves banks and licensed FinTechs as wallet providers. Moreover, this digital currency will operate on a hybrid distributed ledger by combining account-based and token-based elements to ensure both security and transparency. Awad explained, “It will be treated as equivalent to central bank reserve, as it requires adjustment in liquidity management and monetary policy execution.”
The new framework also introduces stricter compliance measures. Federal Decree Law No. (6) of 2025 consolidates financial regulation under the CBUAE and empowers it to impose administrative fines up to AED 1 billion for major violations. Hence, it ensures the integrity of the growing financial ecosystem of the UAE.
UAE Sets Benchmark for Digital Transformation in Finance
The recognition of the Digital Dirham as a legal tender represents a major milestone in the journey of the UAE toward a digitally empowered economy. Moreover, it will transform how citizens, businesses, and government entities conduct transactions after implementation.
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