It’s Time for a Digital Dirham
The UAE is poised to turn the remittance sector on its head with a digital currency that could be moved across borders with the touch of a button.
By Xische Editorial, May 9, 2021
Source: nanoagency/Envato
If you thought that the incredible bull run in cryptocurrency prices has been wild to watch, get ready for much more dramatic developments. The next chapter might not be as interesting for the individual investors, but it will be historic for blockchain technology and the future of money. The United States announced this week that it would launch five pilot programs to test the potential uses of US central bank digital currency. This is the most concrete step the US has taken towards a digital dollar, and it should send clear signals to governments around the world. Namely, it’s time for more state-backed digital currencies.
The US is a little late to this table. Last month, the Chinese government announced a digital Yuan with great fanfare. Aside from concerns about how a centralized digital currency will give Chinese authorities even more control over the surveillance of their people, the digital currency could give China a leg up in the global remittance trade.
The Wall Street Journal captured the sentiment, “Digitization wouldn’t by itself make the yuan a rival for the dollar in bank-to-bank wire transfers, analysts and economists say. But in its new incarnation, the yuan, also known as the renminbi, could gain traction on the margins of the international financial system. It would provide options for people in developing countries to transfer money internationally. Even limited international usage could soften the bite of U.S. sanctions, which increasingly are used against Chinese companies or individuals.”
Understandably, the US is angry about this new digital Yuan, which could hamper the ability of US regulators to look into cross-border transactions that might have a bearing on US financial interests. Playing a bit of catch-up, the US nonprofit Digital Dollar Project is now testing a digital dollar. This is both a hedge against the digital Yuan and a way of continuing the Dollar’s prominence as one of the world’s most powerful currencies. The US central bank digital currency (CBDC) is “the digital equivalent of banknotes and coins, giving holders a direct digital claim on the central bank and allowing them to make instant electronic payments.” Proponents of the digital currency say that it will promote financial inclusion of Americans and those aboard that need to use dollars while curbing the appeal of anonymous cryptocurrencies such as Bitcoin.
With the leading superpowers rushing into the digital currency space, it’s time for smaller countries to consider their digital offerings. The UAE, with its sizable global remittance sector and leading economic position in the Middle East, is the perfect candidate to lead this charge into digital currency. A digital dirham could quite literally connect emerging markets with one unified digital currency that would promote financial literacy and have few competitors in the market (for now).
Given the UAE’s experience and use of blockchain technology, creating a digital dirham could positively affect the country’s knowledge economy. Consider some of the positive spillovers that such a currency would have. Digital Know Your Customer procedures would need to be upgraded and expanded. Cashless payments platforms would be significantly expanded far beyond the country’s borders. Coding, standardizations, and deeper review of government transactions would all be improved.
Above all else, a digital dirham would send a signal to the international community that the UAE is ready to lead in the transformation of money. Increasingly digital currencies operating on a blockchain will replace how finance works. Cash will be a thing of the past. This is not going to happen in 100 years; it will happen in the next ten years. With the US following China’s lead, countries with the expertise and resources can jump ahead of the curve now and establish themselves as key players in the future of money.
Beyond the boost to the UAE’s knowledge economy, a digital dirham would revolutionize the remittance market. As one of the most trusted remittance markets globally, the UAE would be able to turn the sector on its head with a digital currency that could be moved across borders with the touch of a button on a cellphone. There would be a steady flow of digital dirhams across the emerging world.
Creating a state-backed digital currency is no easy task, but the potential return is hard to comprehend fully. With the right tools, human capital, and infrastructure, the UAE is poised to create a truly global digital currency that would entrench the country’s position as a hub of the emerging world. The time is right; it’s time to take the plunge.
