The Central Bank in the United Arab Emirates (UAE) issued the ‘Regulatory Framework for Stored Values and Electronic Payment Systems’ on January 1 which appeared to ban all virtual currencies. However, the Bank’s Governor recently corrected this misconception, confirming that virtual currencies, including bitcoin, are not banned.
Bitcoin is not Banned
The UAE Central Bank defines ‘virtual currency’ as “any type of digital unit used as a medium of exchange, a unit of account, or a form of stored value”. The recent Regulatory Framework states that virtual currencies are not recognized by these regulations, adding that:
All Virtual Currencies (and any transactions thereof) are prohibited.
This statement caused many people to conclude that the Central Bank has banned all virtual currencies. However, Gulf News recently obtained clarification from the Central Bank confirming that virtual currencies were not banned. Mubarak Rashid Khamis Al Mansouri, Governor of the Central Bank, told the publication:
These regulations do not cover “virtual currency” […] these regulations do not apply to bitcoin or other cryptocurrencies, currency exchanges, or underlying technology such as blockchain.
The Governor also revealed that virtual currencies are “under review by the Central Bank and new regulations will be issued as appropriate.” He emphasized that the Regulation Framework’s core objective is “to facilitate robust adoption of digital payments across the UAE”.
A Closer Look at the Regulations
The Regulatory Framework is still unclear on what exactly is included.
“Looking at the relevant wording and its location in the new Regulations (section D – Common Regulatory Requirements for all PSPs)”, Brian Meenagh, Partner at the Dubai-based Latham & Watkins law firm, explained to Bitcoin.com that “it appears that the intent of the wording is to prohibit payment service providers licensed under the new Regulations from dealing in virtual currencies at this point in time rather than prohibit virtual currencies throughout the UAE”.
These regulations would probably “give some comfort to businesses that treat bitcoin as a commodity that people can trade” such as exchanges, Meenagh said. However, “businesses that treat bitcoin as a currency that can be used for retail transactions or currency remittances should still proceed cautiously and seek further guidance as to whether or not they are affected (or prohibited) by the Regulations”, he added, citing the new regulations’ definition of payment service provider.
Other UAE Bitcoin Regulations
While some countries, such as Japan, consider Bitcoin as a method of payment, others, like the U.S., consider Bitcoin an asset. For the UAE, Meenagh believes that “until further guidance is issued, the new Regulations may lead to a pause in efforts to promote Bitcoin as a method of payment”.
However, based on the Governor’s clarifications, “we would not expect the Regulations to change any behavior with respect to the operation and use of bitcoin exchanges in the UAE”, he clarified.
Nonetheless, virtual currencies are “being considered” by both the UAE Central Bank and the Dubai Supreme Legislation Committee, Meenagh pointed out.
Last November, the Dubai Supreme Legislation Committee hosted a workshop on ‘the present and future of legislative and legal frameworks of Bitcoin’. Held amid a “high-level attendance of local and federal government entities,” the purpose of the talk was to help bring the UAE up to speed on the challenges that bitcoin and other digital currencies present.
“The term ‘virtual currency’ is relatively new, not only in the UAE and the region but also globally. Therefore, there is an urgent need to spread awareness about ‘Bitcoin’”, said H.E. Ahmad bin Meshar Al Muhairi, Secretary General of The Supreme Legislation Committee in the Emirate of Dubai. H.E. He also noted that:
We look forward to support officials at government bodies nation-wide with detailed information about the optimal use of this virtual currency. This will acquaint them with the ways international law deals with ‘Bitcoin’, which is now officially recognised worldwide.
How do you think the UAE will treat Bitcoin? Let us know in the comments section below.
Images courtesy of Shutterstock, Latham & Watkins, UAE Central Bank
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