Sunday 24 May 2009

Now is no time to debate the dollar peg

The announcement by the UAE that it was pulling out of the GCC monetary union has led to renewed questions about a 30-year monetary relationship: might the Emirates eventually reconsider the dirham’s peg to the US dollar?

“I wonder if the UAE is not interested in getting away from the dollar peg,” says Jean-Michel Six, the managing director and chief European economist at Standard & Poor’s, the ratings agency. “At some point it might be a smart move to have a currency that is strong in its own right.”

Certainly, many say it is now only a matter of time before debate over the peg resurfaces. The dirham has tracked the dollar since 1978 and was officially pegged to the US currency in 1997, before GCC countries had begun preparing for a common currency. Since then, only Kuwait among GCC states has abandoned its peg to the dollar in favour of a currency basket.

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