The US and eurozone debt crises have ushered a new era of the improbable in currency and financial markets. This may be a good time to re-assess the UAE's policy of "pegging" the dirham in a constant relationship of Dh3.67 per US dollar.
Historically, the UAE and most Gulf economies have anchored their domestic currencies to the US dollar. But new uncertainties surrounding the dollar lead many to ask if the UAE should either a) repeg the dirham to a basket of world currencies or b) float the dirham and pursue other monetary objectives.
Let's consider the alternatives.
Repegging would likely involve a range of currencies including the euro and the pound sterling. This might allow the dirham to remain strong against other currencies, but that may not be a desirable policy objective. After all, a weak dirham increases foreign demand for both tourism and real estate - two important pillars of the UAE economy.
In addition, moving to a basket of currencies would introduce uncertainty in budgeting since oil, which is traded in dollars, remains an important part of central and sub-central government revenues.
And including sterling in the currency basket would likely achieve a strong dirham but the euro, just like the dollar, is currently beset by uncertainty - with the added risk of a eurozone break-up.
A strong dirham should not be a policy objective in itself. The positive aspects of a stronger currency have to do with lower imported inflation, but inflation is already at an all time low, below 2 per cent and the UAE's inflation volatility, which is among the highest in the world, will persist.
This has to do with having a fixed exchange rate, rather than with the particular currency or currencies chosen as an anchor.
The other option, allowing the dirham to float against other world currencies, would ostensibly allow the UAE Central Bank to set and pursue a particular inflation-targeting regime - the only viable alternative to a currency peg.
Targeting a given inflation rate essentially allows the Central Bank to set expectations for the private sector on the future rate of inflation. and allows market participants to make more informed decisions: a stable rate of inflation instills confidence in consumers and investors alike.
Inflation in the UAE, however, is largely not under government control: because this is an open economy, inflation volatility is mostly imported, making a more active role for the Central Bank exceedingly difficult.
Under the current monetary regime, the UAE has traded inflation stability for exchange rate stability - this is an additional source of inflation volatility and indeed recent figures show that the UAE has witnessed periods of extremely high inflation followed by single-digit rates of inflation.
A stable inflation rate would benefit UAE residents but economic activity would likely be negatively affected. The UAE benefits from large sums of foreign investment in the real estate sector, the banking sector, and in the form of foreign direct investment. Setting the dirham afloat would make investment returns more difficult to measure, and would remove the existing assurance that investors are not subject to domestic currency risks.
Most UAE residents are foreign and their principal objective in coming to the UAE is to save in their respective currencies. Having a dirham pegged to the dollar ensures that their savings are essentially in the world's reserve currency.
Similarly, international investors are much more interested in a stable exchange rate than in a stable inflation rate - and so should the UAE government.
To put it plainly: a floating exchange rate would encourage foreign residents to put their savings in their respective currencies (the Australian dollar, pound sterling, and so on). That would cause a fall in the value of the dirham.
The central bank, in its effort to prop up consumer confidence, would likely decrease money supply to support the value of the dirham. This would in turn generate higher interest rates and lower levels of domestic investment. The result would be negative consequences for economic growth.
The UAE Central Bank has recently made it clear that it will maintain its current monetary stance. Could the US dollar lose further ground against major currencies? In the short term, investors will be spooked by the ratings downgrade. But the long-term value of the US dollar reflects the purchasing power of the currency.
The US has a nearly $15 trillion economy, which grew at an annual rate of about 1.5 per cent in the first quarter. It is US fiscal policy - not the economy - that is unsound.
The ratings downgrade may well jolt US policy-makers into fiscal discipline, but with jittery financial markets and low investor sentiment, a fiscal remedy may spell another recessionary period.
In improbable times, the steady-as-she-goes stance of the UAE Central Bank remains the right call.
Dr Tarek Coury is an economist at the Dubai School of Government
COMPANY%20PROFILE%20
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Tree of Hell
Starring: Raed Zeno, Hadi Awada, Dr Mohammad Abdalla
Director: Raed Zeno
Rating: 4/5
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RESULTS
5pm: Maiden (PA) Dh80,000 1,200m
Winner: Ferdous, Szczepan Mazur (jockey), Ibrahim Al Hadhrami (trainer)
5.30pm: Arabian Triple Crown Round-3 Group 3 (PA) Dh300,000 2,400m
Winner: Basmah, Fabrice Veron, Eric Lemartinel
6pm: UAE Arabian Derby Prestige (PA) Dh150,000 2,200m
Winner: Ihtesham, Szczepan Mazur, Ibrahim Al Hadhrami
6.30pm: Emirates Championship Group 1 (PA) Dh1,000,000 2,200m
Winner: Somoud, Patrick Cosgrave, Ahmed Al Mehairbi
7pm: Abu Dhabi Championship Group 3 (TB) Dh380,000 2,200m
Winner: GM Hopkins, Patrick Cosgrave, Jaber Ramadhan
7.30pm: Wathba Stallions Cup Conditions (PA) Dh70,000 1,600m
Winner: AF Al Bairaq, Tadhg O’Shea, Ernst Oertel
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Company%20profile
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The%20specs
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The biog
Age: 30
Position: Senior lab superintendent at Emirates Global Aluminium
Education: Bachelor of science in chemical engineering, post graduate degree in light metal reduction technology
Favourite part of job: The challenge, because it is challenging
Favourite quote: “Be the change you wish to see in the world,” Gandi
Personalities on the Plate: The Lives and Minds of Animals We Eat
Barbara J King, University of Chicago Press
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
COMPANY PROFILE
● Company: Bidzi
● Started: 2024
● Founders: Akshay Dosaj and Asif Rashid
● Based: Dubai, UAE
● Industry: M&A
● Funding size: Bootstrapped
● No of employees: Nine
Our legal columnist
Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
Jigra
Starring: Alia Bhatt, Vedang Raina, Manoj Pahwa, Harsh Singh
Naga
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Takreem Awards winners 2021
Corporate Leadership: Carl Bistany (Lebanon)
Cultural Excellence: Hoor Al Qasimi (UAE)
Environmental Development and Sustainability: Bkerzay (Lebanon)
Environmental Development and Sustainability: Raya Ani (Iraq)
Humanitarian and Civic Services: Women’s Programs Association (Lebanon)
Humanitarian and Civic Services: Osamah Al Thini (Libya)
Excellence in Education: World Innovation Summit for Education (WISE) (Qatar)
Outstanding Arab Woman: Balghis Badri (Sudan)
Scientific and Technological Achievement: Mohamed Slim Alouini (KSA)
Young Entrepreneur: Omar Itani (Lebanon)
Lifetime Achievement: Suad Al Amiry (Palestine)
Thank You for Banking with Us
Director: Laila Abbas
Starring: Yasmine Al Massri, Clara Khoury, Kamel El Basha, Ashraf Barhoum
Rating: 4/5
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if you go
The flights
Emirates have direct flights from Dubai to Glasgow from Dh3,115. Alternatively, if you want to see a bit of Edinburgh first, then you can fly there direct with Etihad from Abu Dhabi.
The hotel
Located in the heart of Mackintosh's Glasgow, the Dakota Deluxe is perhaps the most refined hotel anywhere in the city. Doubles from Dh850
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Events and tours
There are various Mackintosh specific events throughout 2018 – for more details and to see a map of his surviving designs see glasgowmackintosh.com
For walking tours focussing on the Glasgow Style, see the website of the Glasgow School of Art.
More information
For ideas on planning a trip to Scotland, visit www.visitscotland.com
Various Artists
Habibi Funk: An Eclectic Selection Of Music From The Arab World (Habibi Funk)
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
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Diriyah%20project%20at%20a%20glance
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APPLE IPAD MINI (A17 PRO)
Display: 21cm Liquid Retina Display, 2266 x 1488, 326ppi, 500 nits
Chip: Apple A17 Pro, 6-core CPU, 5-core GPU, 16-core Neural Engine
Storage: 128/256/512GB
Main camera: 12MP wide, f/1.8, digital zoom up to 5x, Smart HDR 4
Front camera: 12MP ultra-wide, f/2.4, Smart HDR 4, full-HD @ 25/30/60fps
Biometrics: Touch ID, Face ID
Colours: Blue, purple, space grey, starlight
In the box: iPad mini, USB-C cable, 20W USB-C power adapter
Price: From Dh2,099
On the menu
First course
▶ Emirati sea bass tartare Yuzu and labneh mayo, avocado, green herbs, fermented tomato water
▶ The Tale of the Oyster Oyster tartare, Bahraini gum berry pickle
Second course
▶ Local mackerel Sourdough crouton, baharat oil, red radish, zaatar mayo
▶ One Flew Over the Cuckoo’s Nest Quail, smoked freekeh, cinnamon cocoa
Third course
▶ Bahraini bouillabaisse Venus clams, local prawns, fishfarm seabream, farro
▶ Lamb 2 ways Braised lamb, crispy lamb chop, bulgur, physalis
Dessert
▶ Lumi Black lemon ice cream, pistachio, pomegranate
▶ Black chocolate bar Dark chocolate, dates, caramel, camel milk ice cream
Results
%3Cp%3E%0D%3Cstrong%3EElite%20men%3C%2Fstrong%3E%0D%3Cbr%3E1.%20Amare%20Hailemichael%20Samson%20(ERI)%202%3A07%3A10%0D%3Cbr%3E2.%20Leornard%20Barsoton%20(KEN)%202%3A09%3A37%0D%3Cbr%3E3.%20Ilham%20Ozbilan%20(TUR)%202%3A10%3A16%0D%3Cbr%3E4.%20Gideon%20Chepkonga%20(KEN)%202%3A11%3A17%0D%3Cbr%3E5.%20Isaac%20Timoi%20(KEN)%202%3A11%3A34%0D%3Cbr%3E%3Cstrong%3EElite%20women%3C%2Fstrong%3E%0D%3Cbr%3E1.%20Brigid%20Kosgei%20(KEN)%202%3A19%3A15%0D%3Cbr%3E2.%20Hawi%20Feysa%20Gejia%20(ETH)%202%3A24%3A03%0D%3Cbr%3E3.%20Sintayehu%20Dessi%20(ETH)%202%3A25%3A36%0D%3Cbr%3E4.%20Aurelia%20Kiptui%20(KEN)%202%3A28%3A59%0D%3Cbr%3E5.%20Emily%20Kipchumba%20(KEN)%202%3A29%3A52%3C%2Fp%3E%0A
RACE CARD
5pm: Maiden (PA) Dh80,000 1,400m
5.30pm: Maiden (PA) Dh80,000 1,200m
6pm: Arabian Triple Crown Round-1 (PA) Listed Dh230,000 1,600m
6.30pm: HH The President’s Cup (PA) Group 1 Dh2.5million 2,200m
7pm: HH The President’s Cup (TB) Listed Dh380,000 1,400m
7.30pm: Wathba Stallions Cup (PA) Handicap Dh70,000 1,200m.
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
Call of Duty: Black Ops 6
Developer: Treyarch, Raven Software
Publisher: Activision
Console: PlayStation 4 & 5, Windows, Xbox One & Series X/S
Rating: 3.5/5
What is a Ponzi scheme?
A fraudulent investment operation where the scammer provides fake reports and generates returns for old investors through money paid by new investors, rather than through ligitimate business activities.
SPECS
Engine: Two-litre four-cylinder turbo
Power: 235hp
Torque: 350Nm
Transmission: Nine-speed automatic
Price: From Dh167,500 ($45,000)
On sale: Now
LIVING IN...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.