The UAE recently reached a major milestone with the Digital Dirham, its central bank digital currency (CBDC), by completing the first government-to-government (G2G) transaction on a blockchain platform. The transaction, carried out between the UAE Ministry of Finance and the Dubai Department of Finance, was settled in under two minutes, bypassing traditional intermediaries such as banks or clearing houses. This marks the first major live test since the Digital Dirham pilot launched in March 2025.
The transaction was processed via mBridge, a multi-CBDC platform jointly developed by the Central Bank of the UAE, BIS Innovation Hub, the Bank of Thailand, the Hong Kong Monetary Authority, the Digital Currency Institute of the People’s Bank of China. mBridge leverages blockchain for secure, immutable ledgers and smart contracts to automate settlements. This enables direct peer-to-peer transfers in central bank money, reducing costs by up to 50 per cent and eliminating reconciliation delays that typically take days in legacy systems like SWIFT.
The UAE has been exploring the issuance of a CBDC since 2019, but the first Digital Dirham was issued as legal tender only in 2024 on the CBDC issuance platform. Around the same time, the Central Bank of the UAE conducted a real-value retail pilot to evaluate the Digital Dirham’s design, technology, and advantages. It also developed four digital-economy use cases to assess the feasibility and effectiveness of the Digital Dirham as an innovative universal payment method that could open up new business models and spur financial innovation through interoperability, accessibility, and programmability.
With wider acceptance, the UAE expects the Digital Dirham to become a primary channel for remittance flows to countries such as India. The Central Bank of the UAE has said that the Digital Dirham is designed with a focus on efficiency, lower costs, financial inclusion for key user groups, and dedicated cross-border infrastructure. It aims to be widely accessible and to serve populations most involved in sending remittances. The bank has also noted in a recent policy paper that widespread accessibility is expected to expand financial services for unbanked or underbanked individuals—a critical factor for many remittance users who lack traditional bank accounts.
The Digital Dirham uses an intermediated distribution model, with licensed financial institutions—including banks, payment service providers, and exchange houses—acting as wallet providers. Exchange houses have long played a central role in the remittance ecosystem, and the system is expected to evolve into a hybrid, wallet-based access model, which is often easier for individuals without conventional banking relationships. By lowering barriers and expanding access, the Digital Dirham is likely to promote financial inclusion and ensure more equitable distribution of the benefits of digitalisation. A notable design feature is that non-residents will also have access, which is essential for enabling cross-border transfers by people who do not permanently reside in the UAE.
For the Digital Dirham to become a primary remittance channel, it must overcome familiar pain points in traditional remittance systems, such as high costs and slow settlement. Many observers expect it to simplify cross-border payments by reducing fees and enabling instant settlement in central bank money. Instant settlement and broad accessibility are central goals of the CBDC.
The success of the first major live test may influence trade between India and the UAE. As early as July 2023, the two countries signed MoUs to enable trade settlement in their national currencies and to link their payment and messaging systems. In March 2023, when the Central Bank of the UAE launched its “Digital Dirham” strategy, along with the soft launch of mBridge for real-value cross-border trade settlement and proof-of-concept work on domestic CBDC issuance for both wholesale and retail, the third stated goal involved India. It called for proof-of-concept work on a bilateral CBDC bridge with India. Once this CBDC bridge is operation, it is expected to further India’s economic ties with the UAE.