Business | Banking
Exchange firms blame lack of regulations for woes
The UAE Central Bank directed money exchange houses to refund to their clients any differences arising from purchasing US dollars at rates outside the official band on the weekend.
- By Ahmed A. Elewa, Staff Reporter
- Published: 23:28 December 3, 2007
- Image Credit: Gulf News
- Exchange houses in UAE have been directed to refund to their clients any differences arising from purchasing US dollars at rates outside the official band on the weekend.
Abu Dhabi: The UAE Central Bank on Monday directed money exchange houses to refund to their clients any differences arising from purchasing US dollars at rates outside the official band on the weekend.
The Central Bank has asked persons involved to approach its Dubai office with original invoices within a month. "The Central Bank will arrange with the money changers to send the difference amounts to their addresses," the statement said.
Gulf News on Sunday reported that several exchange houses were offering as low as Dh3.05-Dh3.30 per US dollar, which is pegged at Dh3.67 to the dirham.
Exchange firms widened the spread between the dollar's buying and selling prices to Dh3.35 and Dh3.685 respectively on December 1 and 2, compared to the rates prevailing on the previous day of Dh3.65 and Dh3.68 set by the commercial banks.
"During that time many people suffered from apparent injustice as they had to sell dollars at an extremely high rate against the dirham, and this cannot be accepted," a central bank official said.
The move by the central bank is the second in less than 10 days, in an effort to curb speculation in the currency markets about an eminent revaluation of the dirham against the US dollar. Last week, the central bank announced a reduction of interest rates on Certificates of Deposit by 10 to 15 basis points.
Nevertheless, the central bank considered the move a clear violation of its regulations and warned exchange firms of severe penalties if it happens again.
On Monday, the rates eased back to the previous buying and Dh3.68 selling, coinciding with the resumption of banking activities after the National Day holiday.
Experts say the situation reflected the pressure on the weakening dollar, rather than a coordinated move aiming at exploiting the retail market.
Meanwhile, Abu Dhabi Exchange companies blamed the absence of official regulations governing the rates spread of cash transactions in the dollar against the dirham for the sharp increase of the local currency's selling rate by more than eight per cent during the holidays.
They maintain they were obliged to follow market trends, with some complaining about the absence of the official spread band for cash buying and selling of the dollar.
During the holidays, the absence of a safety net provided by commercial bank rates, that usually hedge their dollar positions in the short term, meant that no exchange firm could defy the market trend and lose money, but rather secure its position.
"The problem is that there is no official band set by the central bank for cash transactions, and accordingly we follow the market trend, as is the case with any currency," said Sudhir Kumar Shetty, COO of Global Operations and General Manager at UAE Exchange.
"This was always the case with the UAE currency market in cash terms, as we usually find better rates in cities compared to the airport, and different competing rates set by different exchange companies on any given day, the difference is that now the dollar is under extreme pressure," Shetty said.
Differences
The US dollar positions of exchange companies taken during the holidays will allow them to settle these differences without incurring losses, yet the incidence reflects clearly the mounting pressure in the foreign exchange market.
"On these dates we were buying the dollar at Dh3.35, but now our rate is Dh3.65," an exchange officer at Al Ansari Exchange replied to a Gulf News inquiry.
Your comments
In the absence of a clear regulatory mechanism, local exchange houses will exploit weak market dynamics.
SM
Sharjah,UAE
Posted: December 04, 2007, 09:51
I exchanged $200 at the rate of Dh 3.40 per dollar from Wall Street Exchange on Naif Road last Saturday. I almost lost Dh50. Will I get back the difference?
Beltton
Dubai,UAE
Posted: December 04, 2007, 09:25
I do appreciate the Central Bank?s decision to pay the difference arising out of different rates of exchange. The exchange dealers were exploiting the situation. Well done, Central Bank.
Hamza
Dubai,UAE
Posted: December 04, 2007, 09:09
The Central Bank should realise that the pressure on dollar is too high and the dirham should be revalued as early as possible.
Sheikh
Sharjah,UAE
Posted: December 04, 2007, 08:43
It is shocking that this is happening in the UAE, where the Central Bank has the full power over exchange houses.
Altaf
Sharjah,UAE
Posted: December 04, 2007, 05:17
Every store at the Mall of the Emirates was accepting US dollars at Dh3.50 today. When I spoke to a supervisor at Carrefour, I was informed that the rate was official. Several people in front of me were using dollars; I think, this will lead to total chaos.
Susan
Dubai,UAE
Posted: December 04, 2007, 00:56
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