The UAE Currency Board came into existence with its issuance of the UAE dirham in May 1973. In 1975-76, statutes came into force providing for the board's gradual transformation into a central bank, including powers to impose minimum liquidity ratios and other credit regulations. The board was replaced in 1980 by the UAE Central Bank, with enhanced authority to regulate the banking system. Capitalized at $81.7 million, the bank was granted additional capital of $2 billion from the government in 1982, which was to increase by 20% per year until a total deposit of $4 billion had been reached.
The oil boom of the 1980s brought with it the proliferation of commercial banks, making the UAE one of the most overbanked countries in the world. By 1987, strains were beginning to show and two banks collapsed. Bad loans were prevalent and some borrowers used the Islamic prohibition on riba (interest) as an excuse not to repay debts.
UAE banks were hit hard by the invasion of Kuwait in 1990, when partial withdrawals amounted to an estimated UD 7 billion ($1.9 billion), or 7% of total deposits. In 1991, the Bank of Commerce and Credit International (BCCI), based in the United Arab Emirates and owned in large part by the ruling family of Abu Dhabi, was accused of fraudulent dealings, and closed, damaging the credibility of the UAE banking system. However, because of improvements in the banking system, in 1999 the government cleared the way for establishment of an offshore banking center to be based in the free zone on Saadiyat Island, to enable UAE to compete with Bahrain. Also in 1999, the merger of two banks—National Bank of Dubai and Emirates Bank International—was announced. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $10.7 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds— was $42.6 billion.
As of 2000, the United Arab Emirates was planning a stock exchange as part of the financial center on Saadiyat Island in Abu Dhabi.