A new UAE law has officially established the Digital Dirham as legal tender, giving the central bank-issued digital currency the same legal status as physical notes and coins. The move came as the Ministry of Finance and Dubai’s Department of Finance completed the country’s first government transaction using the new currency, marking a significant milestone in its pilot phase.
New Law Establishes Digital Currency
Federal Decree Law No. (6) of 2025 formally defines the Dirham as being represented by “notes, coins and digital forms,” providing the Central Bank of the UAE (CBUAE) with a clear statutory basis for its digital currency programme. This framework is part of a wider overhaul that consolidates the regulation of banks, insurers, and fintech firms under the CBUAE.
However, the full implementation awaits detailed regulations from the CBUAE’s Board of Directors. “These regulations are expected to govern how the digital currency will be issued, circulated, redeemed at full nominal value, and legally transferred,” said Ali Awad, a partner at Al Tamimi & Company. Once the system is operational, no merchant, financial institution, or public body will be permitted to refuse Digital Dirhams for payment.
The new law also introduces stronger enforcement tools for the Central Bank, including early-intervention powers and the ability to levy administrative fines of up to Dh1 billion for serious violations.
Future Applications and Economic Benefits
With the legal framework in place, the path is clear for broader adoption. According to Awad, there is now “no legal obstacle to paying salaries, retail purchases, or remittances in Digital Dirhams.” The operational rollout will require employers, payment networks, and remittance platforms to integrate with the new infrastructure. This push towards a digital economy is expected to fuel growth among digital startups in Dubai, which are central to the new financial ecosystem.
The CBUAE states the Digital Dirham will simplify payments by reducing transaction costs and enabling immediate settlement for retail, wholesale, and cross-border transfers. Unlike physical cash, it supports programmable payments and is designed to improve the efficiency of the country’s payment systems. Officials also believe a widely accessible central bank digital currency (CBDC) could advance financial inclusion by providing unbanked individuals with easier access to formal financial services.
Technical Framework and Distribution
The Digital Dirham will be distributed through an intermediated model, with licensed financial institutions and fintech companies acting as wallet providers. The CBUAE policy paper confirms that providers will include banks, exchange houses, and payment service providers.
The system relies on a hybrid architecture that combines account-based and token-based elements. While users will hold wallets with specific account identifiers, all transactions will be recorded on a permissioned distributed ledger to ensure security and transparency. Awad explained that the currency will be treated as equivalent to central bank reserves, which will prompt changes in liquidity management and regulatory protocols for financial institutions. The CBUAE plans to introduce the Digital Dirham in phases, with risk controls integrated into its design.
