UAE unlikely to drop dollar peg soon: analysts

DUBAI - The Central Bank of the United Arab Emirates is unlikely to announce an end to its currency’s peg to the US dollar or revalue during the ongoing summit of the Gulf Cooperation Council (GCC), analysts said on Monday.

By (DPA)

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Published: Mon 3 Dec 2007, 10:00 PM

Last updated: Sat 4 Apr 2015, 9:34 PM

There has been public debate and speculation over the re- evaluation of the dirham but neither a re-evaluation nor a drop of the dollar peg is likely to be announced at the summit, says Marios Maratheftis, Standard Chartered Bank’s regional head of research for the Middle East, North Africa and Pakistan.

The six GCC states - Saudi Arabia, the United Arab Emirates (UAE), Oman, Qatar, Bahrain and Kuwait - are to discuss during their Doha summit key economic issues but currency reform is not on the agenda, analysts said.

Gulf countries are divided over the issue of pegging their currencies to the dollar. Saudi Arabia is comfortable with the dollar peg and has no interest in dropping it after 21 years.

Commenting earlier on the speculation over a drop, Saudi Finance Minister, Ibrahim Al Assaf, told reporters, ‘We will not drop it. That’s it.’

The UAE is in favour of GCC currency reform, but faces strong opposition from Saudi Arabia.

The UAE economy is suffering the adverse effects of a falling dollar, which has depreciated by almost 40 per cent over the last year alone and contributed to massive inflation.

In addition, interest rate cuts by the US Federal Reserve affect GCC states because of the dollar peg.

‘Given these two very different positions, we do not expect a major decision on the issue to be announced at the Doha Summit,’ Maratheftis said.

He also pointed out that continued uncertainty over the peg question would have detrimental effects on the market, and that a decision on currency policy was likely to be announced within the next two months.

The GCC is planning to stick to 2010 as a target date for the launch of a single currency. However, analysts say the deadline might be extended several years beyond the original target year.

‘A currency union is the last step in building a unified economy, and it must be preceded by a prolonged, sustained period of economic harmonization,’ said Steffen Schubert, former CEO of the Dubai International Financial Exchange.

‘In Europe, the euro was adopted as a physical currency almost a decade after the 1993 Maastricht Treaty. The 2010 deadline therefore is not realistic,’ Schubert said.

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