Shaky dollar threatens UAE stability, exit dirham US dollar peg?

Published on January 10, 2011 by   ·   No Comments
Shaky dollar threatens UAE stability, exit dirham US dollar peg

The United Arab Emirates (UAE) needs to develop an exit strategy from its US dollar peg against the UAE dirham, to guard against potential currency shocks in the future, says a Dubai Government economist.

Further falls in the value of the dollar could threaten the country’s economic performance, said Abdulrazak al Faris, the chief economist of Dubai Economic Council. “If we have a crisis in the dollar it will raise questions,” he said yesterday. “Even though we may not move away from the dollar in the foreseeable future it’s important to have an exit strategy so we know what to do if a crisis happens.”

Mr al Faris was speaking in Dubai at the launch of a book he has co-edited about currency issues affecting the GCC. Members of the Central Bank, the Dubai Government and other economists attended the event.

Speaking afterwards, however, Saif al Shamsi, the senior executive director of the Central Bank’s Treasury Department, reiterated recent comments by the Governor Sultan al Suwaidi that the dirham’s link to the dollar would remain.

Debate about the future of the fixed exchange rate regime has intensified in recent months as world economies have become caught in the crossfire of a battle raging between the two leading economic superpowers about the value of each other’s currencies.

At the heart of the dispute is an accusation by the US that China is deliberately keeping its currency low to boost exports. China says the US is to blame for manipulating markets by printing dollars.

Some economists have urged the UAE and other GCC economies with dollar links to re-examine their pegged regimes to shield themselves from such currency wars.

That could enable the region to exert greater flexibility to fine-tune economic growth and guard against the risk of a return to inflationary problems, they say.

A fixed currency regime could affect growth by making it difficult for a government to respond to shocks such as a dramatic collapse in the price of oil, said Ronald MacDonald, professor of economics at the University of Glasgow, who co-edited the book entitled Currency Union and Exchange Rate Issues: Lessons for the Gulf Stateswith Mr al Faris.

“The bigger countries have not played the rules of the game and this can hurt those countries pegged to the dollar,” Mr MacDonald said.

“The danger is if the dollar’s not behaving, this can lead to a [pegged] country ending up with economic policy decisions not in your interests.”

He suggested an alternative to the fixed peg would be pegging the dirham to a basket of international currencies that could, in addition, be linked to the price of oil.

Readers Comments (0)

Please note: Comment moderation is enabled and may delay your comment.


Request Information:

Request more information from Currencies Direct, one of Europe's largest private foreign exchange brokers:

Open a New Account:
Currencies Direct Quote:
Lowest Transfer Deals:
The Best Foreign Exchange Deal?

TorFX is a leading UK broker of foreign exchange services and can now offer a 0.7% guaranteed margin rate making them one of the cheapest money transfer companies in the UK.

Money Transfers with TorFX

So whether you are buying an overseas property, emigrating, making regular payments abroad, or making a currency transfer for any other reason, TorFX can save you money on your foreign exchange transactions. TorFX Money Transfers

Foreign Exchange Service

Transferring money overseas?

Sending money overseas and want to save on currency exchange commission fees?

Secure and fast foreign exchange services which will save you a packet over transferring money using traditional banks. Read more: Foreign Exchange Service

Foreign exchange for a trip abroad?

Using a standard debit or credit card while travelling abroad to take out cash or make transactions is costly as fees from banks typically add 5% in charges.

Load and take a travel money card with you to save a fortune in foreign exchange charges. Read more: Travel Money Cards