UAE won't rule out dropping dollar peg

The UAE has not ruled out dropping its currency’s peg to the dollar, but would only do so with the support of other GCC nations, the country’s central bank governor said today.

“For the UAE I can say comfortably and surely that we will not move alone and we will move with other GCC countries,” Sultan Nasser Al-Suweidi told reporters, speaking on the sidelines of the annual meeting of the Bank for International Settlements in Switzerland.

“We will all be together in it. No we are not ruling out, but we will have to move together,” he added.

Al-Suweidi’s comments are the clearest indication yet that the UAE would consider dropping the dirham’s dollar peg.

Previously Al-Suweidi has said the UAE is “committed” to keeping its currency pegged to the dollar at a fixed rate.

Jordan, however, categorically ruled out dropping its currency’s peg to the dollar on Saturday, with central bank governor Umayya Toukan stating it was “not for discussion”.

If fact, Toukan said Jordan may actually buy more of the US currency to help take pressure off the dinar.

“There may come a time when we will intervene in the market to take some upward pressure off our currency by buying dollars with dinars,” he added.

Toukan has previously blamed the weak dollar, along with higher fuel costs, for rising inflation in the country.

However, he said inflation would return to normal levels of between 3-4% in the “medium term”, from around 5% this year, and foresaw no currency problems on the horizon.

Central bank governors across the Middle East, where many countries have their currencies pegged to the dollar, have been under pressure to revalue this position following Kuwait’s and then Syria’s decision to drop their currencies’ dollar peg in favour of a basket of currencies.

The weakening of the dollar against other international currencies over the last year has seen the cost of imports denominated in currencies such as the euro rise significantly.

This has had a negative impact on inflation and has limited countries’ ability to cool their economies because their commitment to the dollar peg restricts their ability to raise interest rates out of step with the US Federal Reserve.

Suweidi said that countries in the GCC - where price stability has suffered as a result of the weak dollar - did not face a permanent inflation problem, but did have bottlenecks in real estate that were likely to be temporary.

He also said that the Gulf monetary union, which has been thrown into doubt by Kuwait’s decision to drop the dollar peg, would come in stages and the unified currency will come after the GCC sees the common market was working to the group's satisfaction.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM