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Like it or lump it, we're staying pegged

Gulf countries have huge ambitions. If you read this magazine every week you'll know exactly what I mean. Every industry is on the up and growing, and the achievement targets within these sectors are getting grander by the hour. The region is setting itself the goal of tempting tens of millions more tourists to travel by building mega theme parks with animatronic dinosaurs; 40% of under-construction retail space is being allocated to new brands that have never before seen the light of day in the Gulf; millions of future homes are being cemented together to cater for a swelling population with a rising number of expatriates, skilled and unskilled, being lured away from their countries on a daily basis for the promise of a sun-soaked lifestyle and tonnes of cash to boot.

It's great to watch, but delve a little deeper and you'll see a rather large crack beginning to appear.
The money we earn today is not worth as much as it was 18 months ago. And it's all down to one simple factor - the majority of GCC countries are pegged to the US dollar, which at present, is at a 26-year low against the British pound. Not since 1981 has the greenback been in a weaker state. The problem is this is increasingly having a knock-on effect on expatriates and their purchasing power. For every dirham, riyal or dinar they wire back home, they get less for their money. When I arrived in the Middle East, for example, the dirham against the pound was at 6.3, now it's hovering around the 7.4 mark. If the situation continues many of the GCC's ambitious targets will be severely dented. But instead of damage limitation, GCC governments are simply turning down the idea of dropping their currency's peg to the dollar in favour of say, the euro.

So it faces a dilemma. Does it follow Kuwait in dropping the dollar in favour of a basket of currencies including the very robust euro (which so far doesn't appear to have made much difference), or does it continue to persist in refusing to budge?

I personally, and rather disappointingly for my own bank balance, can't see any of them following suit. The UAE Central Bank, for instance, has repeatedly refused to revalue the dirham; insisting on sticking to the dollar peg as part of its commitment to the common Gulf currency. But sadly the single currency itself appears off-track with experts suggesting that it will miss its 2010 deadline.

So what to do? Continue to see expats lose out? Well yes. The GCC is determined to see a competitive common currency come through, one where instead of individual states making unilateral decisions on exchange rates, a single currency would emerge that could stand on its own two feet and compete with international markets. Until this happens, ambitious targets will continue to be set and people will continue to walk through the customs gates. Sadly, however, when they go to send money home they'll be getting far less than they bargained for.

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