Analysts predict end to dollar peg

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SICK NOTE: GCC countries will drop their dollar peg policy, say analysts. (Getty Images)

Currencies of the UAE and Qatar are predicted to appreciate five per cent by the end of the year or early 2009 when both countries are expected to abandon their peg to a weak US dollar.

Economists and currency analysts say although the currency market has curtailed its expectations of a possible revaluation of GCC currencies following strong official support from the GCC authorities in favour of the dollar peg, the two economies remain under mounting pressure to review their policy, Khaleej Times reported on Sunday.

Inflation in the UAE jumped to 11.1 per cent in 2007, and is expected to cross 12 per cent this year, as rents rocket while the weaker dollar and higher global food prices have made imports more expensive.

Turker Hamzaoglu, Merrill Lynch economist, told the paper: "Despite a significant softening in the forwards, we remain of the view that the GCC currencies are subject to appreciative pressures. We expect an appreciation of five per cent for the dirham and Qatar riyal by year-end. Our baseline scenario for the two currencies is a move to a currency basket in the next few months."

Although the UAE Central Bank Governor Sultan bin Nasser Al Suwaidi has repeatedly reaffirmed his support for the dollar peg, there is a high probability the UAE will opt for a basket of currencies after Abu Dhabi's Department of Planning and Economy hinted that the country should abandon the peg, the analyst added.

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READERS' COMMENTS

DEPEGGING OF THE DIRHAM
Posted by BUDDHADEB MOOKERJEE, Dubai, U A E on Sunday 27 July 2008 at 15:45 UAE time


This issue is being speculated upon for more than a year now. Although depegging the UAE Dirham from the US Dollar makes eminent sense, there must some compulsion which has held back the authorities so far from taking the vital step. Let us not waste our efforts to engage in empty rhetoric. Years will come and go and we may not see the depegging happening for some mysterious reason.

variations in the value of money, said Ludwig von Mises
Posted by Ivo Cerckel, Siquijor, Philippines on Sunday 27 July 2008 at 10:44 UAE time

De-pegging from the US dollar and re-pegging to a basket (which, the basket, includes the US dollar)?

The fact that the exchange value of the basket will be liable to variation/fluctuation continues to escape explicit recognition and public opinion.

The same was true of the Islamic Gold Dinar.

In fact, the nature of the problem, and the way in which it was dealt with, made this impossible from the very beginning.
It was treated not as a question of the attitude of the law toward variations in the value of money but as a question of the power of the prince or the state arbitrarily to modify existing obligations and thus to destroy existing rights.

That’s what Ludwig von Mises said more that 80 years ago in Chapter 12, section 1, of his book The Theory of Money and Credit.

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