Middle East Online

Middle East Online




The dollar is worth 3.67 dirhams

UAE likely to revalue dollar-pegged currency

Industry report: UAE central bank might revalue dirham against US dollar to bring down inflation.

DUBAI - The United Arab Emirates is likely to revalue its currency against the flagging dollar in a bid to bring down inflation and meet criteria for a single Gulf currency, an industry report said on Monday.

It is "most likely that the UAE central bank will revalue the dirham against the US dollar in line with other GCC currencies," the Dubai Chamber of Commerce and Industry (DCCI) said.

"This will help to some extent in alleviating inflationary pressures whilst retaining adherence to the dollar peg stipulated as an integral part of the convergence criteria necessary for a (Gulf) MU (monetary union) in 2010," it said in the report.

The dollar is worth 3.67 dirhams, the rate used for the past decade.

Oil-rich Gulf Cooperation Council (GCC) member states Bahrain, Kuwait, Qatar, Saudi Arabia and the UAE have set 2010 as the target date for adopting a monetary union and single currency.

Oman, the sixth GCC member, has said it will not join, at least at the initial stage.

The DCCI said that while GCC states have met several convergence criteria in preparation for monetary union -- including levels of public debt, budget deficits, interest rates and foreign reserves -- the criteria set for inflation rates have not been satisfied.

"The disparities in inflation rates undermine the convergence of economies in real terms, especially with regards to interest and exchange rates," it said.

Since May, when Kuwait dropped its dollar peg and adopted a basket of currencies, there has been constant speculation that the UAE and Qatar would follow suit or revalue their currencies.

GCC leaders decided at their annual summit in Doha in December that their currencies, except for Kuwait's, would remain pegged to the greenback despite its depreciation.

GCC states, which are US allies, are experiencing high growth rates of between four and eight percent because of rising oil revenues that have boosted liquidity to new levels.

But inflation has also risen to double digits in some of them as a result. Official figures put 2006 inflation in the UAE at 9.3 percent.