The Central Bank of the UAE will begin issuing dirham-denominated securities named Monetary Bills (M-Bills) starting in January.
The regulator said the bills will be issued to help manage liquidity within the UAE's banking sector and to develop a secondary market for the securities, which will contribute to the long-term goal of a risk-free pricing benchmark for dirham-denominated debt.
“The launch of the M-Bills programme provides us with the opportunity to establish robust infrastructure required not only to manage liquidity, but also to provide a stable collateralised source of funds to banks and financial institutions operating in the UAE," Saif Hadef Al Shamsi, the central bank's deputy governor, said in a statement.
"We are confident that the set-up of such infrastructure will also assist in the development of a dirham local market for securities issued by the public sector in the UAE in future," he added.
The new securities will be auctioned and traded through Bloomberg's primary and secondary market infrastructure and settled through a local platform that will be built and operated through Euroclear Bank.
They will replace an existing certificates of deposit programme and are an important milestone towards the creation of a Dirham Monetary Framework announced by the regulator in February this year.
As part of this framework, the central bank introduced an Overnight Deposit Facility in July that allows banks operating in the country to deposit surplus liquidity with it on an overnight basis. In October, it also tweaked rules covering how long deposit-taking institutions need to hold reserves.
The UAE has been developing infrastructure to spur a dirham-denominated yield curve for debt securities for the past two years, beginning with a Public Debt Law allowing the issuance of federal bonds in 2018.
The issue and secondary trading of M-Bills should help to reduce the volatility of borrowing costs and stabilise yields in domestic money and capital markets, the central bank said.
“As a result of our collaboration with the Central Bank of the UAE and Bloomberg, we have together been able to achieve a market first offering," said Stephan Pouyat, global head of capital markets and funds services at Euroclear, said.
Bloomberg's head of electronic trading systems, Nicholas Bean, said its bond auction systems "are part of a range of Bloomberg solutions designed to help bring more transparency to regional markets".
"We are delighted by this collaboration with the Central Bank of the UAE and Euroclear to support the bond markets in the UAE.”