Image courtesy: Dubai Media Office/ Website
Dubai has announced an ambitious initiative to rank among the world’s top five cashless cities by 2033, aiming to unlock over $2bn in economic value by mandating digital payment acceptance across all businesses.
This vision aligns with a global shift toward digital economies, where cashless transactions are lauded for their speed, security, and transparency. A key pillar in this transformation is the development and implementation of Central Bank Digital Currencies (CBDCs), which are gaining traction worldwide as governments seek more accountable, efficient financial tools.
CBDCs: The next-gen tool for transparent payments
CBDCs—digital currencies issued and regulated by central banks—offer more than just convenience. Their advanced programmability makes them powerful tools for transparency and control in public finance.
A distinctive feature of CBDCs is their ability to ‘mark’ funds, enabling real-time tracking of transactions. This allows governments and institutions to provide instructions on how and where funds are used, ensuring they serve their intended purposes.
How the marking process works:
- A state agency opens a CBDC account and initiates marking.
- Non-cash money is converted into CBDC.
- Funds are marked with usage conditions (recipient, limits, expiration, etc.).
- Marked funds are transferred to recipients (e.g., contractors).
- Funds can only be used according to preset conditions.
- Multiple levels of marking can control subcontractor behavior.
- Once all conditions are fulfilled, restrictions are lifted.
These measures make it really hard to misuse funds, withdraw them as cash, or repurpose them—offering unparalleled oversight.
Token-based architecture simplifies fund management
CBDC systems are often based on a token model, where each unit of currency is a programmable token rather than an account balance. These tokens carry built-in rules, such as expiration dates, spending categories, or recipient restrictions.
Benefits of token architecture:
- Streamlined transactions: Tokens with compatible conditions can be combined, eliminating the need for multiple accounts.
- Enhanced compliance: Conditions are enforced at the token level, ensuring automatic compliance.
This model is particularly effective for government contracts, where conditions on how funds can be spent are often complex and layered.
Real-world use cases for marked and traceable CBDCs
The most compelling applications of marked CBDCs are found in government-business-citizen interactions. These include:
- Transparent government procurement: Automating compliance and minimizing budget misuse.
- Targeted budget allocations: Funding for volunteer centers, sports, education, and cultural initiatives.
- Social assistance: Ensuring that government aid is used appropriately.
- Corporate benefits: Enabling controlled spending on transport, food, or fuel.
Recent pilot programs offer strong proof of concept. In July 2024, Kazakhstan used its Digital Tenge to mark funds for the Dostyk-Moyinty railway project. By September, it extended the model to automatically separate VAT in B2B transactions—improving tax collection and refund processes. Tech firm Axellect played a significant role in these implementations.
Regional momentum: Middle East embraces CBDCs
Nearly two-thirds of countries in the Middle East and Central Asia are exploring CBDCs.
Nations like Saudi Arabia, Bahrain and the UAE are moving from theory to practice, launching pilot projects to evaluate the viability of digital currencies in public finance and commerce.
Dubai’s cashless vision, supported by CBDCs, represents a step toward a more resilient and transparent financial future.
Concluding thoughts: Innovation with guardrails
CBDCs could revolutionise how governments manage money—provided proper regulatory, legal, and social frameworks are in place. Transparent communication and robust governance will be key to building public trust and ensuring widespread adoption.
As Dubai races toward a cashless future, its embrace of CBDCs could serve as a blueprint for digital transformation across the region—and the world.
