Bitcoin Exempt from UAE Central Bank’s Ban on Virtual Currencies
On January 1, 2017, the Central Bank of the United Arab Emirates (UAE) published a new framework covering digital payments in the country. According to the new “Regulatory Framework For Stored Values and Electronic Payment Systems,” which is applicable to all electronic payment services providers, “all Virtual Currencies (and any transactions thereof) are prohibited.”
In the new framework, the definition for virtual currencies that the central bank has identified is “any type of digital unit used as a medium of exchange, a unit of account, or a form of stored value.” This would suggest that bitcoin and other digital currencies have been officially banned by the UAE central bank as of January 1.
However, on February 1, Mubarak Rashed Khamis Al Mansouri, governor of the UAE central bank, informed Gulf News in a statement saying that “these regulations do not cover ‘virtual currency,’ which is defined as any type of digital unit used as a medium of exchange, a unit of account, or a form of stored value. In this context, these regulations do not apply to bitcoin or other digital currencies, currency exchanges, or underlying technology such as blockchain.”
He added that digital currencies are “currently under review by the Central Bank and new regulations will be issued as appropriate.”
In the statement, Governor Al Mansouri further highlighted that fintech development will play an integral role in the future of the UAE’s financial industry, which is the reason why the new framework was introduced at the beginning of the year.
While the new framework for e-payments and the confusion surrounding bitcoin regulations may sound worrying to some, the reality is that the UAE aims to become a leading center for blockchain innovation by 2020 and intends to become the first government to execute all of its transactions using the distributed ledger technology.
To achieve this goal, Dubai’s Crown Prince, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, launched the Dubai blockchain strategy to improve inefficiencies in governmental departments by eliminating paper transactions and by reducing the work hours involved in handling paper transactions. Furthermore, the blockchain strategy also aims to facilitate company incorporations for Emiratis, expats and foreign investors by creating a blockchain-based incorporation system.
As the UAE aims to become a leader in blockchain technology, it would be extremely surprising if its regulators would then stunt innovation in this area by restricting or prohibiting the use of digital currencies. Hence, any future bitcoin regulations in the UAE will most likely favor blockchain startups and the bitcoin economy.