‘UAE should reconsider dollar peg’

"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," said Eirvin Knox, chief executive officer of Abu Dhabi Commercial Bank (ADCB), the third-largest lender by market value in the Gulf Arab emirate.

Abu Dhabi is the most powerful member of the UAE federation. The UAE is one of five nations in the world's biggest oil-exporting region that pegs its currency to the dollar.

The dollar slid to a record low against a basket of currencies on Monday on fresh worries about the health of US financial firms and fears of a US recession stoked expectations of aggressive rate cuts.

The dollar also hit a three-year low against the yen, below 103, and an all-time trough against the Swiss franc, as investors rushed to unwind leveraged carry trades in which funds are borrowed in those low-yielding currencies to buy higher-yielding assets.

The dollar peg has served Gulf economies "very well" and helped the region prepare for monetary union, the UAE central bank Governor Sultan Nasser Al Suweidi said last week.

Suweidi said in November he was under mounting social and economic pressure to revalue the UAE dirham or drop the peg altogether as inflation surges in the second-largest Arab economy.

The peg forces Gulf Arab oil producers -- except Kuwait which pegs its currency to a basket -- to follow the United States in lowering interest rates at a time when Gulf economies and inflation are surging on a five-fold increase in oil prices during the last six years. (Reuters)