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UAE currency reform still on the cards

"With central banks in the region increasingly concerned about the level of inflation, irrespective of its actual causes, then the temptation to look for ways to mitigate it must be increasing," writes Brice. According to Standard Chartered, inflation in the UAE reached 10.4 per cent in 2005 and an estimated 13.8 per cent in 2006. It is forecast to reach 9.3 per cent this year. A fall in the perceived costs of moving away from the US dollar peg as a result of Kuwait's decision to move to a more flexible exchange rate regime is also adding impetus to the debate, he argues.

The role of the UAE is deemed pivotal to whether the region decides to de-peg from the US dollar and will determine the timeframe over which any action may be taken, Brice argues that if the UAE sticks to its latest stance — that it will only move away from a US dollar peg as part of a wider GCC move — "then such a move would appear unlikely this year."

He adds: "However, if the UAE were to go it alone, then a move this year is possible. Kuwait has created a blueprint that is relatively easy for a central bank to follow." Brice reckons that it only requires the central bank to determine that this is the best course of action, "and then persuade the leadership that this is the case — presumably something that is a lot easier in light of Kuwait's experience."