The Central Bank of the United Arab Emirates (CBUAE) has reaffirmed its commitment to issuing currency notes as a way to bolster the nation's financial system's stability. This move comes despite the increasing adoption of digital payment methods across the UAE.
Financial experts acknowledge the growing popularity of cashless transactions. The CBUAE's own report, released in late 2023, highlighted a significant rise in mobile and online banking usage. This trend is likely to continue as the UAE cements its position as a tech hub in the region.
However, the CBUAE maintains that physical currency plays a crucial role in maintaining a healthy financial ecosystem. Cash serves as a reliable backup system in case of technological disruptions or cyberattacks that could cripple digital transactions. The central bank pointed to the importance of cash for citizens who are not enrolled in the banking system or those residing in areas with limited internet access.
Issuing currency notes also allows the CBUAE to implement monetary policy decisions more effectively. By regulating the amount of physical money in circulation, the central bank can influence inflation rates and economic growth. Cash also fosters financial inclusion for those who are unbanked or underbanked, promoting participation in the formal economy.
The CBUAE's decision to prioritize both cash and digital transactions reflects a nuanced approach to financial innovation. While the bank embraces digital advancements, it recognizes the continued importance of traditional banknotes in safeguarding financial stability and ensuring a smooth flow of commerce throughout the UAE. This balanced approach is likely to be closely monitored by other central banks around the world grappling with similar questions about the role of cash in an increasingly digital era.