UAE threatens foreign exchanges

The UAE central bank warned domestic foreign exchange outlets against ignoring the official exchange rate after some raised their dirham prices in anticipation of a possible revaluation.

The bank said on Monday it will reimburse customers who had been overcharged, using funds placed with it by the foreign exchange companies.

The central bank of the second-largest Arab economy "noticed that some moneychangers took advantage of the rumours promoted by some speculators and raised the exchange rate of the dirham against the US dollar", it said in a statement.

The bank will "enforce more severe penalties in case of similar violation in the future," it said. "This action of some money changers is harmful to the tourism industry."

Hotels and money changers in the UAE changed dollars into dirhams at as much as 17% below the official rate in anticipation of a revaluation.

Gulf Arab rulers are meeting in the Qatari capital, Doha, amid frenzied speculation that some may drop their pegs to the declining dollar or allow their currencies to appreciate. The central bank has held the dirham's rate at 3.7625 to the dollar since 1997.

Central bank governor Sultan Nasser Al-Suweidi said last month he was under intense social and economic pressure to sever the peg to the tumbling dollar and track a currency basket to contain inflation.

Even though Al-Suweidi said he would only act in concert with other Gulf oil producers preparing for monetary union, his remarks helped drive the dirham to 17-year high on Friday.

"The Central Bank decided to deduct from the accounts of the concerned moneychangers and pay the difference in exchange rate to the harmed persons," the central bank said in the statement. (Reuters)