Dirham could be revalued: DCCI

Dubai: As part of meeting the convergence criteria to achieve GCC monetary union by 2010, the UAE is likely to revalue the dirham, the Dubai Chamber of Commerce and Industry said in a report on Monday.

Last December, Gulf leaders at the Doha Summit made a unanimous commitment to overcome the economic challenges facing the 2010 GCC monetary union target.

"This [commitment of the political leadership] indicates that the UAE Government will relinquish control of its exchange rate policy in favour of meeting with the GCC monetary union criteria.

"It is therefore most likely that the UAE Central Bank will revalue the dirham against the dollar in line with other GCC currencies," the DCCI said.

The report argues that revaluation will help to some extent in alleviating inflationary pressures while retaining adherence to the dollar peg stipulated as an integral part of the convergence criteria necessary for monetary union by 2010.

Since 1983, GCC countries have been integrating their economies.

The final step in the integration process, a monetary union, has been agreed to be created by 2010.

Non-binding criteria

The monetary union would involve all GCC members adopting a single currency vis-a-vis world currencies, adopting common monetary and banking policies, creating a pool of foreign exchange reserves managed by one central bank and achieving reasonable economic convergence.

In 2004, the GCC countries agreed to adopt the official convergence criteria of the European Union.

However, for all practical purposes, these criteria are non-binding for the GCC countries mainly due to high oil revenues and the peg to the US dollar.

The GCC countries have met all convergence criteria on levels of public debt, budget deficits, interest rates and foreign reserves. However, the criteria set for inflation rates has not been met.

The inflation criteria stipulate that inflation rates should not exceed two per cent of the lowest three's average.

With the steadily increasing divergence among the GCC member states, the criteria have not been achieved.

Although GCC econ-omies are fairly well harmonised, in terms of economic structure, cyclicality and openness, the report said that unfortunately, the disparities in inflation rates undermine the convergence of economies in real terms, especially with regard to interest and exchange rates.

Kuwait de-pegged from the US dollar peg earlier in 2007.

Oman opted out of joining the monetary union in 2010, and there are mounting internal and external pressures on monetary authorities to change their currency policy as a result of the depreciation of the US dollar.

Does this report help strengthen the argument for re-evaluating the country's monetary policy? Will it make an impact or be ignored?

The dirham has lost its charm. It is remains pegged to the dollar then we will have little alternative to save.
Remis
Dubai,UAE
Posted: February 05, 2008, 08:57

This is a great step forward and will curb inflation. It will also strenghten the GCC currencies as more countries join the club.
Stevie
Dubai,UAE
Posted: February 05, 2008, 08:21

The UAE should definitely revalue its currency to keep inflation at a minimum level.
Zahra
Sharjah,UAE
Posted: February 05, 2008, 08:10

The region is heading towards the right choice and some Asian countries should also follow the same policy.
Gilbert
Rome,Italy
Posted: February 05, 2008, 07:49