UAE Makes History: Digital Dirham Now Legal Tender, Paving Way for a Cashless Future
In a landmark move for its financial sector, the United Arab Emirates has formally elevated its central bank digital currency (CBDC), the Digital Dirham, to the status of legal tender. Enacted through Federal Decree Law No. (6) of 2025, this decree legally defines the UAE Dirham to include both its physical and digital forms, placing them on equal footing.
This groundbreaking decision means that once operational, the Digital Dirham must be accepted for “payment of any amount” across the nation. Merchants, financial institutions, and government entities will be legally obligated to accept it, just as they do physical cash.
Legal Foundation and Pending Implementation
While the law sets the stage, the operational details are now in the hands of the Central Bank of the UAE (CBUAE). According to Ali Awad, a legal advisor at Al Tamimi & Company, the CBUAE will issue the specific regulations governing how the digital currency is issued, circulated, and transferred.
“In practical terms, once those regulations are in place, the law obliges that no merchant, bank or public entity can decline payment in digital dirhams,” Awad explained. He also confirmed that “there is no legal obstacle to paying salaries, retail purchases, or remittances in Digital Dirhams.”
The Promise of the Digital Dirham
The CBUAE describes the Digital Dirham as a secure and accessible digital form of the national currency, backed by the full trust of the central bank. Its key benefits, as outlined in the CBUAE’s policy paper, include:
Streamlined Payments: Reducing transaction costs for retail, wholesale, and cross-border use.
Advanced Technological Features: Supporting programmable payments, real-time settlement, and more efficient international transfers—capabilities traditional cash cannot offer.
Enhanced Trust: Offering the security and stability of a central bank-issued currency.
How the Digital Dirham Will Work
From a technical standpoint, the Digital Dirham will utilize a hybrid model, combining account-based and token-based elements. A network of licensed banks, payment service providers, and fintech firms will offer digital wallets. The underlying ledger will be a “permissioned” distributed ledger, ensuring all transactions are recorded and secure.
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Part of a Broader Financial Overhaul
This initiative is part of a wider regulatory modernization under the same 2025 law, which also strengthens the CBUAE’s oversight of banks, insurers, and fintech companies. The law introduces significant new enforcement powers, including fines of up to Dh1 billion for serious breaches.
The project is already moving from theory to practice. The Ministry of Finance and Dubai’s Department of Finance recently completed the UAE’s first government-to-government transaction using the Digital Dirham as part of its pilot phase.
The Road Ahead
The UAE’s move positions it at the forefront of the global CBDC race. By granting digital money the same legal status as cash, the country is building a new payments ecosystem poised to reshape everything from payroll to international trade.
However, the program’s success hinges on the timely rollout of regulatory frameworks, wallet interoperability, and widespread adoption by both the public and private sectors. The legal recognition of the Digital Dirham is a monumental first step, marking the beginning of the UAE’s ambitious journey toward a fully digital financial age.
