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09 December 2023

Why keep savings in UAE dirham: Currency among world's safest

UAE dirham is among the world’s top 25 currencies for exchange rate stability. (FIle)

By Waheed Abbas

Volatility in equities affects only those who have exposure to the stock markets. But this isn’t the case when it comes to volatility in the currency market.

And it matters to expatriates who bear the brunt of fluctuation in their home currencies. So it’s best to keep the savings – rather than remitting them – in a currency that is stable vis-à-vis exchange rate and offers a safe heaven and cushion from the volatility.

But where do you find such a currency? If you’re a UAE resident, you’re in luck.

The Emirati dirham is one of the best options when it comes to exchange rate stability.

It will help – mainly expats – not to lose their hard-earned money due to volatility in the currency market, something over which that they have no control whatsoever.

According to Switzerland-based IMD's World Competitiveness Centre, the UAE dirham is among the world’s top 25 currencies for exchange rate stability, thanks to its policy to peg currency to the dollar.

Rated 24th for exchange rate stability, the UAE dirham is more stable than the currencies of Hong Kong, Singapore, South Korea, France, Germany, Italy and Japan, among others.

TM Lakshmanan, Senior Executive Officer at Alpen Asset Advisors, said the UAE has a long-standing peg to the US dollar because the greenback is a stable currency.

“The decision to peg is also apt from the view that the UAE has a large proportion of expatriate residents who prefer stable savings and foreign investors in large infrastructure projects who prefer certainty in costs and returns. The policy of the UAE Central Bank has been to prioritise exchange rate stability over price stability. This has contributed to a dirham being a stable currency,” Lakshmanan told Emirates 24l7.

“While the peg ties the UAE’s monetary policy to the US’ monetary policy, the key benefit is the strength and stability of the world’s largest reserve currency. While imported inflation is a concern, the strength of the US dollar versus the other majors like euro, Japanese yen and emerging market currencies mitigates this risk to a great extent. Moreover, the UAE has large forex reserves, the key to successfully managing pegged currency,” he added.

According to IMD’s rankings, currencies of Kazakhstan, Canada, Switzerland, Denmark, Bulgaria, Malaysia, Norway, Lithuania, Mexico and the UK enjoyed the best exchange rate stability based on parity change from national currency to SDR 2013/2011.

Among the least exchange rate stable currencies were those of mainly Latin American and Asian countries namely Venezuela, South Africa, Argentina, Brazil, India and Japan.

Top 5 currencies to support competitiveness

According to Switzerland-based IMD's World Competitiveness Centre, the Emirati dirham is the world’s 5th currency when it comes to supporting competitiveness – thanks to UAE’s strong economic fundamental, huge foreign assets and crude reserves.

“The stronger dollar will help to maintain the UAE’s international purchasing power,” Alpen Asset Advisors’ Lakshmanan said, adding that “inflation is likely to remain tame and boost the local consumption thus contributing to the GDP. The strength of the dollar versus the other majors like euro, Japanese yen and emerging market currencies will reduce the risk of imported inflation. This will boost sectors which import goods denominated in non-USD currency.”

The Swiss think-tank IMD awarded Emirati dirham 6.88 points and rated 5th most competitive currency worldwide, more competitive than all the other currencies except currencies of Lithuania, Qatar, Poland and Estonia.

The US, Canada, UK, Switzerland, Australia, Germany, France exchange rates are less competitive than the UAE, IMD data showed.