The UAE has reiterated its intention to maintain the peg between its currency, the dirham, and the US dollar despite fears of rising inflation because of the weakening greenback, local newspapers reported on Tuesday.
Saif Al Shamsi, Executive Director of the Treasury Department at the Central Bank, was replying to a question on whether the recent slide in the US dollar would prompt the UAE to end the longstanding peg.
“The UAE is not concerned about the weakening in the US dollar because inflation is already low,” he said.
“There are no plans to unpeg or revaluate our currency against the dollar as it is the official price of oil and more than 50 per cent of our trading partners are tied to the US dollar,” he said on the sidelines of a business conference.
The UAE’s dirham has been pegged to the dollar at a fixed rate of 3.67 for nearly three decades despite sharp fluctuations in the US currency.
The currencies of other Gulf oil producers have also been attached to the dollar but Kuwait quit the link two years ago and pegged its dinar to a basket of currencies, in which the dollar has the dominant share, in a bid to tackle soaring inflation rates.
The dollar’s weakening through 2007-2008 was among the main reasons for the surge in inflation to record high levels in the six-nation Gulf Cooperation Council (GCC).
Speculation mounted during that period that the six members could appreciate their currencies against the dollar to face inflation, triggering a massive funds inflow by investors seeking quick profits.