United Arab Emirates Mulls Abandoning the Dollar

March 11, 2008 11:38 AM
by findingDulcinea Staff
The UAE has its currency pegged to the flagging U.S. dollar. But high inflation is forcing the Gulf nation to reconsider that arrangement.

30-Second Summary

The United Arab Emirates, long a beacon to expatriates seeking a plush lifestyle, is considering removing its longstanding currency peg to the U.S. dollar in a move to rein in inflation rates.

The Wall Street Journal writes that, in the UAE, the U.S. dollar “contributes 40 percent of total inflation. The National Bank of Abu Dhabi estimates UAE inflation at 10.9 percent in 2007.”

Local distributors report price increases of some 20–30 percent. “A 20-liter tin of a popular brand of cooking oil was available at 47 dirhams ($12.80) in 2006. But now a 10-liter tin of the same oil brand is costing 47 dirhams,” an Abu Dhabi restaurateur told the Khaleej Times.

Said UAE Central Bank Governor Nasser al-Suweidi in November, “There is pressure, strong pressure, in the UAE because of higher inflation and an unexpected further deterioration in the dollar.”

Similar woes prompted fellow Gulf nation Kuwait to unpeg its currency from the dollar in May of last year.

Eirvin Knox, the chief executive director of the Abu Dhabi Commercial Bank, told Gulf News, “The dollar peg has served the economy well, historically, but it may be wise to reconsider it in light of the long-term growth prospects in the region.”

Stephen Corley, writer for Arabian Business, disagrees. Although expats in the emirates may not have as much wiggle room as before, “it is inconceivable that the relentless suggestion of a one-off revaluation will do much to counteract the inflationary spiral.”

Headline Links: UAE to reconsider dollar peg

Background: The UAE deals with inflation

Historical Context: Kuwait unpegs its currency

Opinion & Analysis: Inflation in the Gulf

Reference: The United Arab Emirates

Related Topics: The United Arab Emirates’ global brand


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