Abu Dhabi
UAE Government will keep the dirham tied to the US dollar, Mubarak Rashid Al Mansouri, the Central Bank Governor, told the Federal National Council yesterday.
“The UAE dirham is pegged to the US dollar because oil exports are traded in US dollars, which makes the dirham peg to greenback convenient for oil transactions, and helps stabilise the UAE economy,” Al Mansouri said.
Al Mansouri told the House through the peg, the UAE benefits from the US’s financial stability and staves off vulnerability to exchange rate fluctuations.
- Mubarak Rashid Al Mansouri | Central Bank Governor
A report made by the House’s financial, economic and industrial affairs committee suggested it was high time to reconsider depegging from the US dollar.
“Tying the dirham to the US dollar has boosted the country’s economy, and raised the non-oil exports by 4 per cent in 2016 — despite the increase in dirham’s exchange rate compared to the main trade partners who don’t deal in dollars by 0.3 per cent,” Al Mansouri told the House as the policy of the Central bank was discussed. These exports are expected to increase by 2.9 per cent in 2017 which supports the strong pillars of the competitiveness of the UAE’s exports.
Experts see that 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.
They argue that including sterling in the currency basket would likely achieve a strong dirham but the euro, just like the dollar, is beset by uncertainty — with the added risk of a Eurozone break-up.
The House’s financial, economic and industrial affairs committee’s report also, criticised the Central Bank for the lack of Islamic banking supervision and the deposit guarantee regime.
The committee said the deposit guarantee system will boost financial confidence and reduce conventional risks in the function of the banking system.
It added the Central Bank failed to set up a Sharia Supervisory Board to certify Islamic financial products as being Sharia-compliant, though a federal law was issued in 1985 to this effect.
According to Central Bank estimates the non-oil economy in 2017 is expected to grow by 3 per cent from the year before, meanwhile, non-oil economy made up 81 per cent of the total UAE economy.
The banking sector contributed to the growth of the of non-oil economy in 2017, as a result to the high coverage ratio of the banks’ capital and the continued increase in deposits which rose by 7.8 per cent in November. This means that the banking sector will be able to keep up with economic recovery. The private sector received 74 per cent of local credit given by banks to the UAE based clients.
Central bank assets in 2017 increased by 11.5 per cent to Dh406 billion, driven by an increase in current accounts and bank deposits at the Central Bank, which increased by 3.2 per cent to Dh159.8 billion, the increase was also contributed by a spike by 25 per cent in certificates of deposits issued by the Central Bank, which reached Dh135.1 billion.
The Central Bank’s foreign assets increased by 11.8 per cent in 2017 to Dh348 billion and these assets are invested in liquid financial instruments abroad.
According to information released by the cabinet last September: Dh93.1 billion worth of loans have been given by banks to SMEs, reaching a total of 40.8 thousand loans. The Dh93.1 billion makes 6 per cent of the total domestic credit.
The House session was later held behind closed doors.
