2 June 2007

Jeremy Warner's Outlook: Sir Fred's euro-superjumbo takes flight - Independent Online Edition > Business Comment

Jeremy Warner's Outlook: Sir Fred's euro-superjumbo takes flight - Independent Online Edition > Business Comment: "Consequences of dirham shake-up

I cannot recall ever having written about the dirham, the currency of the United Arab Emirates, but it seems this is a situation now worth watching. Despite official denials, the markets are convinced that the currency is about to abandon its dollar peg.

Kuwait has already taken the plunge. Speculation is rife that the UAE will shortly be following suit. The only thing standing in the way would seem to be regional efforts to forge a currency union, a project dear to the heart of Dubai's ruling Sheikh Mohammed bin Rashid Al Maktoum. Floating exchange rates would plainly not be helpful to these efforts.

Yet local banks are so convinced that it will eventually happen, resulting in a substantial appreciation against the dollar, that they are already imposing constraints on large transactions at current exchange rates, resulting in growing paralysis in one of the region's biggest trading centres. The artificially depressed state of the currency is causing severe inflationary pressures in the region - most of its imports come from Europe and Asia - as well as depressing the UAE's buying power abroad. The logical thing would be either to float, or establish a new peg against a basket of currencies more representative of the region's trading patt"

No comments: