Global: UAE Central Bank Approves Stablecoin Issuer, AED Stablecoin, Under New Payment Token Regulations

The Central Bank of the United Arab Emirates (CBUAE) has granted in-principle approval to AED Stablecoin under its Payment Token Service Regulation framework, according to a press release from the company. This development positions AED Stablecoin as a leading candidate to become the first issuer of a regulated dirham-pegged stablecoin in the UAE.

The preliminary approval marks a significant step for the UAE’s digital finance landscape, easing concerns about restrictions on crypto payments. These concerns had emerged following the CBUAE’s release of its licensing framework, which limits the use of cryptocurrencies for payments unless they involve licensed dirham-pegged tokens.

Regulated Stablecoin Framework

Once fully approved, AED Stablecoin’s AE Coin could serve as a local trading pair for cryptocurrencies across exchanges and decentralized platforms. It would also enable merchants to accept AE Coin for goods and services, opening new avenues for digital payment solutions in the UAE.

The CBUAE’s licensing framework favors fully cash-backed stablecoins while prohibiting algorithmic stablecoins and privacy tokens. Issuers are required to back their stablecoins with dirham-denominated cash reserves held in escrow at UAE banks. Additionally, at least 50% of reserve assets must be held as cash, with the remainder invested in UAE government bonds and CBUAE Monetary Bills with an average duration of up to six months.

Rising Competition in the Stablecoin Market

AED Stablecoin will face competition from established players like Tether, the issuer of the world’s largest stablecoin by market capitalization, USDt (USDT). Tether has partnered with local firms Phoenix Group and Green Acorn Investments to launch its own dirham-pegged stablecoin in the UAE, signaling intensifying competition in the region.

UAE’s Crypto-Friendly Regulatory Landscape

The UAE’s supportive regulatory environment continues to attract major global players in the crypto space. For instance, OKX recently launched a retail and institutional trading platform in the UAE after securing a full license, which includes the ability to offer derivatives trading for qualified institutional investors.

This regulatory clarity and openness signal the UAE’s intent to become a global hub for digital assets and financial innovation.