Central bank approval, bank issuance, on-chain circulation: What kind of national digital financial network is the UAE weaving?

Written by: Liang Yu

Edited by: Zhao Yidan

On January 7, 2026, a significant piece of news emerged from the UAE banking industry: RAKBank (Ras Al Khaimah Bank) located in Ras Al Khaimah officially announced that it has received preliminary approval from the Central Bank of the UAE to issue a payment token pegged 1:1 to the UAE Dirham, namely a Dirham stablecoin.

According to its disclosed plan, this upcoming stablecoin will be fully backed by an equivalent amount of fiat Dirhams held in an independently regulated account. It is not merely a technological experiment but a product strictly adhering to current regulatory frameworks—issued and managed through pre-audited smart contracts, with a commitment to providing verifiable real-time reserve proofs, embedding “compliance” and “transparency” into its core design.

For this traditional bank, which already allows retail clients to trade cryptocurrencies, this move is far from a simple product expansion. It marks a critical upgrade in its digital asset strategy: shifting from a “service provider” offering trading channels to a “issuer” directly minting regulated, on-chain native currency claims.

This is not only an evolution of a bank’s business but also a key move within the meticulously constructed national-level digital financial ecosystem of the UAE. Under the top-level design of central bank digital currencies (digital Dirhams), licensed commercial banks like RAKBank are being permitted to participate, jointly weaving a network for future payments and asset digitization. Consequently, a silent race has begun over “who is qualified to issue core assets on the chain,” with a heavyweight player holding a traditional credit “ticket” entering the game.

I. The Four Pillars of RAKBank’s Stablecoin

The Dirham stablecoin approved for RAKBank demonstrates a relatively complete and reference-worthy issuance model within the current regulatory framework. This plan is built around four core elements, each targeting key requirements of asset tokenization.

Licensed banks as issuers form the trust foundation of the entire scheme. As a licensed commercial bank in the UAE, RAKBank’s long-established credit system makes it possible to address the most critical “trust source” issue in asset tokenization. This contrasts sharply with many stablecoins issued by tech companies, as the involvement of traditional financial institutions provides a different form of credit endorsement.

Full reserves and account segregation ensure the authenticity and safety of the underlying assets. According to the plan, each circulating stablecoin will be backed by an equivalent amount of Dirhams stored in an independent regulatory account. This 1:1 peg and asset segregation arrangement aim to eliminate market doubts about reserve adequacy and provide investors with clear repayment expectations.

Smart contracts and transparent audits constitute the technical execution layer. Managed by audited smart contracts, the issuance and circulation of tokens are complemented by a promise to provide real-time reserve proofs. This technological implementation not only improves operational efficiency but also creates a new transparency mechanism, enabling market participants to directly verify the asset backing.

A clear regulatory framework delineates compliance boundaries. The entire issuance activity will be conducted under the supervision of the UAE “Payment Token Service Regulations,” which require 100% reserve backing, storage in segregated accounts, and explicitly prohibit algorithmic stablecoins and privacy tokens. This “regulation-first” approach differs from the traditional fintech model of “innovate first, regulate later.”

II. The UAE’s Digital Currency Chessboard: How Multiple Forces Are Strategizing

RAKBank is not the only player in this field; it is entering a market already populated by several competitors. Understanding this competitive landscape helps us grasp the overall picture of the UAE’s digital financial ecosystem.

Diverse issuers coexist as a prominent feature of the current market. In November 2025, Zand Bank launched the UAE’s first regulated, multi-chain Dirham stablecoin based on public blockchain. AE Coin, issued by Al Maryah Community Bank, was approved earlier and has been used in pilot crypto payments for government services. Meanwhile, the UAE’s largest bank, First Abu Dhabi Bank, also announced plans to launch its own Dirham stablecoin. The participation of these different institutions reflects a widespread market optimism about this field.

International players are enriching the competitive landscape. Well-known blockchain companies like Circle and Ripple have obtained licenses to issue stablecoins in the UAE, indicating that the UAE’s digital currency ecosystem is not only open to domestic institutions but also welcoming international innovators. This openness may be related to the UAE’s ambition to become a global digital financial hub.

A layered structure may be a future trend. Although the current scene features “multiple issuers coexisting,” as the market matures, it is likely to evolve into different tiers: quasi-public stablecoins for government payments and cross-border clearing; settlement-type stablecoins issued by major banks for service institutions; and application tokens for specific industries or scenarios. These different levels will vary in functionality, regulatory requirements, and target users.

The overall plan of the central bank provides a top-level design background. The UAE Central Bank’s “Financial Infrastructure Transformation Plan” aims to position the country as a global financial center through a series of digital initiatives. Under this plan, compliant stablecoin issuance by private sector entities is seen as a strategic step toward building a complete digital financial ecosystem, fostering markets and use cases for potential future central bank digital currencies.

III. From Supporting Role to Core: The Quiet Shift of Banks’ Roles

RAKBank’s stablecoin initiative is not just about launching a new product; it signifies an exploratory shift in the role of commercial banks in the digital asset space. This transformation could impact the future structure of the financial system.

Limitations of traditional roles drive banks to seek new positioning. Historically, commercial banks in the digital asset domain have played auxiliary roles—such as providing account services to exchanges or allowing clients to trade cryptocurrencies—acting as a “bridge” between traditional finance and the digital world. While important, this role has not fully leveraged banks’ core capabilities in credit creation and risk management.

The attempt to become issuers opens new possibilities. By issuing their own on-chain stablecoins backed by their balance sheets, banks are no longer just “bridges” but are trying to become “creators” of on-chain native assets. Essentially, this involves standardizing and programmable digital versions of their most fundamental liabilities—deposits and claims. If validated, this mode could expand the functional scope of commercial banks within the digital asset ecosystem.

Cautious assessment of scalability is a rational stance. It must be clear that the success of tokenizing monetary claims does not automatically imply the smooth replication of other types of RWA (Real-World Assets). Stablecoins have the advantage of clear legal attributes and value anchoring, whereas assets like bonds and fund shares involve more complex yield distributions, credit risks, and bankruptcy hierarchies. Therefore, the more accurate significance of the RAKBank model may be exploring operational paradigms for the most basic asset classes within RWA, rather than paving the way for all RWA.

The dual impact of competitive dynamics warrants attention. As commercial banks enter the RWA space as stablecoin issuers, they may promote overall ecosystem compliance and mainstream adoption, but could also exert some pressure on existing third-party RWA issuance platforms. This coexistence of competition and cooperation will influence future development paths and innovation directions in the RWA field.

IV. Three Diverging Paths: Different Global Logics of Exploration

RAKBank’s attempt is not an isolated phenomenon; different financial systems worldwide are exploring ways for commercial banks to participate in digital asset issuance. Comparing these paths helps us understand the full scope of this trend.

Similar concepts manifest in different practices, showing diverse approaches. Before and after the RAKBank news, JPMorgan announced that its deposit token, JPM Coin, would be deployed on the Canton Network supported by Goldman Sachs, BNP Paribas, and others. Unlike RAKBank’s broader scenario focus, JPM Coin mainly serves institutional clients for real-time settlement and cross-border transactions. This difference reflects strategic choices based on each bank’s client base and core business.

Differences in regulatory philosophies shape distinct institutional environments. While the UAE allows commercial banks to issue stablecoins on public or semi-public chains, markets like the US and Hong Kong emphasize closed networks, dedicated institutional scenarios, and risk isolation. These differences stem from varying regulatory attitudes toward “the degree of public composability that programmable money should have,” which also define the roles banks can explore in different markets.

Evolving capital regulation frameworks provide compliance references. The Hong Kong Monetary Authority announced that starting January 2026, it will implement Basel Committee standards on banks’ crypto asset risk exposures, classifying qualified, fully reserved stablecoins as “Group 1b crypto assets,” allowing them to be assigned risk weights similar to traditional assets. Such clear regulatory frameworks offer rules for banks to explore asset tokenization within compliant boundaries.

Technical paths influence development speed. Different countries and regions make varied choices regarding blockchain infrastructure, interoperability standards, and privacy technologies, affecting how banks participate in digital asset issuance and the pace of progress. These technical decisions, combined with regulatory policies and market demand, shape the unique features of each region’s digital financial ecosystem.

V. The Final Hurdle Before Scaling Up

RAKBank’s stablecoin plan serves as an important case for observing the development of the RWA space. As the industry shifts from feasibility exploration to large-scale application, several practical challenges are emerging.

Infrastructure development is a prerequisite for scale. Industry analysis generally agrees that asset tokenization will gradually move from experimental to practical applications. In this process, standardized operational procedures established by licensed issuers like RAKBank—covering KYC/AML, reserve audits, compliant redemptions—will become essential infrastructure components for bringing traditional assets onto the blockchain.

Interoperability issues urgently need solutions. How to enable cross-chain and cross-platform interoperability and liquidity aggregation for various asset tokens issued by different banks and in different countries remains a technical and commercial challenge. JPMorgan and DBS Bank in Singapore are actively developing cross-chain interoperability frameworks to address this. The level of interoperability achieved will directly impact the scope and efficiency of asset tokenization applications.

Legal recognition is a gradual process requiring practical accumulation. The legal status of on-chain digital certificates and judicial procedures for dispute resolution still need more real-world cases to clarify. While smart contracts can automatically execute terms, their integration with national commercial and bankruptcy laws requires time and practice. This legal recognition process is likely to be incremental rather than instantaneous.

Market acceptance is the ultimate test of success. Whether enterprises or individual users will adopt these digital tokens on a large scale depends on whether using them can deliver better cost, speed, or functionality than existing tools. Market acceptance depends not only on technological features but also on user experience, network effects, and switching costs.

Three key variables will influence the development process. The substantive progress of this transformation depends on the consistency of regulatory standards, the practical implementation of cross-system interoperability, and whether economic agents are willing to pay the migration costs for “programmability.” The interaction of these variables will determine how much the idea of commercial banks as “issuance hubs” for RWA can become a reality.

When RAKBank’s Dirham stablecoin begins circulating on the chain, it signifies not just the launch of a new financial product but also an experiment in the integration of traditional financial systems with the digital financial ecosystem. The outcome of this experiment will influence not only a single bank or country’s financial layout but could also provide a reference for the global digital transformation of finance.

Whether commercial banks can successfully transform into “issuance hubs” for RWA depends on technological innovation, business strategies, regulatory evolution, and market choices. In this complex interplay, maintaining flexibility in experimentation and exercising prudent risk management may be more important than rushing to conclusions. The evolution of the financial system has always been gradual, and the digital age’s transformation is no exception.