Digital Dirham pilot payment shows the UAE is serious about 21st-century finance

If the state can speed up its financial dealings, then consumer payments will also become faster, cheaper and more secure. Getty Images

For many people, managing their personal finances is a complex job. Balancing income with expenditure, managing debt, paying off major purchases and saving for the future can be a tricky and time-consuming task. However, when it comes to how governments balance their books and finance projects, this level of complexity rises exponentially.

Take, for example, building new schools. In many countries, a central finance ministry transfers funds to the education ministry. This funding is then allocated to different cities and regions. At the same time, not only must this finance be distributed to local education bodies – who often use it to pay private-sector contractors – it must be audited and tracked, all while conforming to borrowing and deficit limits.

New Dirham symbol for national currency. Photo: The Central Bank of the UAE

In countries that rely on legacy banking or computer systems to conduct government payments, dealing with such a convoluted financial chain can curb efficiency and slow the pace of development. However, some nations, such as the UAE, are exploring a new way forward, one that will also have an impact on people’s individual finances.

UAE makes first Digital Dirham transaction in milestone for economy

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This week, it was revealed that the UAE government has carried its first national transaction using the Digital Dirham stablecurrency. Ahmed Ali Meftah, executive director of the central accounts sector at the Dubai Department of Finance, said this pilot transaction carried out by that department and the UAE Ministry of Finance was completed in less than two minutes.

By proving that government entities can settle their transactions almost instantly, the UAE is showing that it is serious when it comes to financial innovation. Although this pilot payment won’t affect individual citizens or residents right away, it sets the stage for a broader rollout of 21^st-century digital finance in the UAE, something that will affect the wider public in the Emirates’ increasingly cashless society.

The transaction between the Dubai Department of Finance and the UAE Ministry of Finance was completed in less than two minutes

While using stablecurrency and blockchain technology improves government liquidity, cash flow as well as official accounting and auditing, it is also a sign to fintech players and investors that the UAE is committed to moving financial innovation from the planning stage into reality. If the state can speed up its financial dealings, then consumer payments will also become faster, cheaper and more secure.

Although it is much more likely that people will trust government-backed stablecoin, there are some caveats. Effective cybersecurity and transparency remain crucial for maintaining that trust. There is also a balance to be stuck in which Digital Dirham transactions complement the existing financial and banking sectors rather than undermining them.

However, given that the Digital Dirham strategy has been in the works since March 2023, when the UAE Central Bank signed an agreement with Abu Dhabi’s G42 Cloud and digital finance services provider R3 to be the infrastructure and technology providers, respectively, there is no indication that anything has been left to chance. On the contrary, with the government using digital currency to meet its own commitments, the UAE can expect the Digital Dirham to soon become a part of everyday life.