About the framework
'The Dirham Monetary Framework (DMF) is a key initiative introduced by the Central Bank of the UAE in 2017 for the purpose of enhancing monetary policy implementation and developing money markets in the UAE.
The DMF describes our operations in the UAE Dirham money markets. It determines the monetary tools and operational methods to achieve our monetary policy objectives, including policies to manage the UAE Dirham exchange rate and money markets in the UAE.
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The main pillars of this framework and related operational set-up are focussed on the overriding monetary policy objective of maintaining the UAE Dirham peg to the US Dollar.
The main benefits of the DMF are three-fold:
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Introduce and consolidate liquidity facilities to ensure domestic money market rates align to US levels, in support of the foreign exchange peg.
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Provide a clear distinction between Standing Facilities and Open Market Operations to improve the CBUAE’s capacity to manage liquidity.
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Create incentives for Deposit-Taking Financial Institutions to manage their day-to-day liquidity stance proactively, and support money market development and collateralisation in the UAE.
Following extensive international benchmarking and consultation with the IMF and market participants on the DMF’s features and operational set-up, an independent market-wide risk assessment and consequences analysis was conducted on both the CBUAE’s balance sheet and market participants.
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In January 2020, the Board of Directors instructed the Monetary Policy Department to implement the new DMF as per the timeline approved in the roadmap, and to establish the necessary steps to announce its implementation to participants in the domestic market.
Last updated on: Thursday 28 July 2022
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