The United Arab Emirates (UAE) recently released unclear regulations prohibiting the use of virtual currencies with payment service providers (PSP), effective January 1, 2017. In the Central Bank of the UAE (CBUAE) Rulebook, Regulatory Framework for Stored Values and Electronic Payment Systems, section D.7.3, a very definitive statement regarding PSP transactions states, “All Virtual Currencies (and any transactions thereof) are prohibited.”
On February 1, 2017, the CBUAE followed up on this regulation, clarifying that it wasn’t entirely prohibitive of virtual currencies. CBUAE governor, Mubarak Rashid al-Mansouri, released a statement that explained the bank’s decision. The statement was released exclusively to Gulfnews business reporter Ed Clowes, who tweeted:
“The core objective of this framework is to facilitate robust adoption of digital payments across the UAE in a secure manner whilst promoting the highest levels of consumer protection and financial stability”
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 crypto – currencies, currency exchanges, or underlying technology such as blockchain.
This area is currently under review by the Central Bank and new regulations will be issued as appropriate.”
This discrepancy is perplexing since the UAE has lately been an advocate of blockchain technology, the underlying tech of virtual currencies. In late 2016, the UAE hosted a Hackathon that encouraged innovation using the blockchain in a number of public sectors. In January 2017, Blockchain USA revealed plans to expand its operations to the Middle East and is in partnership with the Government of Dubai to put all government documents on the blockchain by 2020. At the World Economic Forum, Peter Smith, Chief Executive Officer of Blockchain USA, stated:
"I am very optimistic about the Middle East and we plan to invest big there. I’m really excited about it. It’s a great chance to build a new financial infrastructure in the region."
With use cases of the blockchain becoming more prevalent, it’s possible this was the catalyst for the clarification on the CBUAE’s decision. Even with the CBUAE governor’s statement about the regulation being “under review by the Central Bank,” and new regulations soon being issued, the legality of virtual currency use still remains unclear.