Will the UAE ditch its dollar peg?

While possible, there is a delicate balance between its pros and cons.

Will the uae abandon its currency peg to the dollar? It is a question that investors, economists, analysts and commentators, amongst others, in the UAE and around the world ask periodically. 
But due to droping oil prices - Brent crude oil has tumbled more than 40 per cent since November last year - once again, it's an issue that is taking centrestage.
Like many oil producers whose currencies are pegged to the dollar, the UAE has been hit considerably by the fall in oil prices over the last year-and-a-half. 
A case in point would be Kazakhstan, which adopted a free-floating currency in August after crude fell below $50 a barrel. The country's unpegging of its currency, the tenge, prompted its 22 per cent slide. Another and perhaps better-known example would be the Norwegian kroner, which is significantly oil-dependent. It fell from being worth 19¢ at its peak in 2011 to just 11¢ at the end of November.
With oil prices still falling, it is widely expected that a free-floating dirham would, like the tenge and the kroner, devalue. As such, when one talks of the UAE, and indeed other Gulf oil producers potentially ditching their fixed exchange rates, or free floating, essentially, one is referring to a currency devaluation.
With this in mind, what would be the impact of a dirham devaluation? Let's start with the main advantages.
Of course, the main reason behind a devaluation would be that exports of goods priced in local dirhams would become less expensive for foreign buyers. This would encourage job creation in the many sectors, including tourism and real estate, and in turn boost domestic demand through wider economic growth. 
However, any developer or bank that has dollar-denominated borrowing secured against UAE property will find the cost of interest and of capital repayment has gone up. There is the risk of a collapse in the property sector as a consequence. In addition, higher exports could help ward off the potential of the country having its first fiscal deficit or current account deficit in more than five years.
There is a flip side to all this, of course.
One of the key disadvantages of a devaluation would be that imports will become more expensive.  Therefore any imported products, such as cars, will experience a price hike. And this is likely to cause inflation. Interest rates may have to rise in order to bring inflation down.
In addition, expats in the UAE who send money back home would find that the value of the cash is reduced. For example, if expats are paying a mortgage in a foreign currency, such as sterling, they will see a considerable increase in the cost of those repayments. Similarly, those paid in dirhams would find that their purchasing power would be eroded when they go overseas.
Bearing in mind these pros and cons, what is the likelihood that the UAE will de-peg its currency?
There's much speculation and it is hard to predict. However, I believe that even if it did happen, and I'm not convinced it will, it would not happen for a while yet for three key reasons.
First, the UAE doesn't need to rush into anything as there is a lower break-even price on oil compared to other GCC countries. It also has a lower fiscal deficit plus considerable foreign reserves.
Second, more and more of the UAE's economy is diversifying away from hydrocarbons, with a significant proportion of its GDP now coming from other sectors, such as tourism.
Third, it is likely that the UAE would introduce corporate tax and value-added tax before it considers an un-pegging of its currency.
Finally, while it is easier to identify the losers of a devaluation - companies and individuals with large dollar debt, and sectors reliant on imports - it is much harder to identify the potential beneficiaries of the future. This means that politics favours holding the peg as long as possible.
All this said, much depends on the trajectory of oil prices from here on in.
The writer is the chief executive officer and founder of deVere Group. Views expressed are his own and do not reflect the newspaper's policy.