Wednesday, November 14, 2007

Dollar peg at the crossroads

Gulf News
The UAE Central Bank Governor yesterday hinted at a potential change in the UAE's exchange rate policy currently anchored on fixed peg against the US dollar.

"The dirham's peg to the US dollar has served the economy of the UAE very well in the past. However, we have reached the crossroads now with a further deterioration in the US dollar and expected further weakening of the US economy," Reuters quoted Sultan Bin Nasser Al Suwaidi as saying in Tokyo yesterday.

Analysts saw the statement as a clear shift in central bank's stand on the peg.



Anonymous Anonymous said...

When I first arrived in the UAE, I heard that it was conventional wisdom that the US would never tolerate the UAE de-pegging.

However, I looked into this a little. The US has a positive trade balance with the UAE. De-pegging simply helps that situation.

What I'd worry about is places like ADIA and the other state-run investment vehicles. ADIA's portfolio is invested significantly in USD denominated instruments. De-pegging means their portfolio is instantly de-valued.

1:09 PM  

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